# Chandaji Kubaji & Co v. State of A ndhra P-radesh S. K. Das]. x960 May3

- **Citation:** [1960] 3 S.C.R. 810
- **Court:** Supreme Court of India
- **Decided:** 1957-02-11
- **Case number:** Civil Appeal No. 100 of 1959
- **Bench:** S. K. Das, M. HrnAYATULLAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/chandaji-kubaji-co-v-state-of-a-ndhra-p-radesh-s-k-das-x960-may3-1898
- **Pages:** 10

## Headnote

Income-tax-Managing Agency Agreement-Proper construction
of-Commission on sale proceeds of the managed company-Time of
accruing.
Messrs. Shivnarayan Surajmal Nomani were the managing
agents of the New Swadeshi Mills of Ahmedabad Ltd. The
Nemani group and the appellant-company which is the assessee
-
-
,J .. ,..,. ...
3 · S.C.R. SUPREME COURT REPORTS
811
held a substantial number of shares of the said mills. Sometime
z96o
'in 1944 some difference arose between them and it was decided
--
that the Nemani group should sell its block of shares to the Cotton A gents l.td.
appellant company at an agreed price and then the appellant
v.
company would become the managing agents of the mills comCommissioner 0!
Income-tax
pany on payment of Rs. 5,00,000 to the Nemani group and would
be entitled to the emoluments of the managing agents as from
April l, 1944· , The relevant portion of the Managing Agency
Agreement ran thus :-
" (2) The remuneration of the agents as such agents of the
company as aforesaid shall be as follows :-
A commission at the rate of three and a half per cent. on the
gross proceeds of all sales of the yarn, cloth, waste and other
articles manufactured by the company earned in any year or
other period for which the accounts of the company are made
up and laid before the General Meeting."
" (3) The said commission shall become due to the Managing
Agents at the end of each financial year or other period for which
the accounts of the company are to be laid before the General
, Meeting and shall be payable and paid immediately after such
accounts have been passed by the General Meeting."
The assessment year was 1946-47, and the year ending with
Diwali, 1945 (October 18, 1944, to November 4, 1945) was the
accounting year. The managing agency commission from Aprill,
1944, to December 31, 1944, amounted to Rs. 2,20>433 and from
January l, 1945, to March 31, 1945, to Rs. 67,959.
The case of
the appellant-company was that for the assessment year 1946-47
it was liable to pay tax only on the commission of Rs. 67,959
which it had earned by working as managing agent of the Mills
company and it was not liable to pay tax on the sum of
Rs. 2,20>433· On a difference of opinion having arisen between
the departmental taxing authorities and the Tribunal the following question was referred to the High Court for decision :-
" Whether on the facts and circumstances of the case the
managing agency commission of 3!% on sales made by the
New Swadeshi Mills of Ahmedabad Ltd., between April l, 1944,
and December 31, 1944, accrued to Shivnarayan Surajmal
Nemani or to the assessee ? "
. The High Court following the decision of the Supreme Court
in E. D. Sassoon and Company Ltd. v. Commissioner of Income-tax,
Bombay City, held that the appellant company was liable to pay
tax on the whole of the commission as the commission accrued
due on March 31, 1945, and they became entitled to receive it at
the end of the year; it also held that no debt was created in
favour of the agents when the goods were sold. On appeal by
the a:ssessee company on a certificate of the High Court :
Held, that the view of the High Court was correct. The
commission. of the managing agents accrued and became due at
the end of the financial year and that neither any debt nor any
right to receive payment arose in favour of the a~enb• when each
812
SUPREME COURT REPORTS
[1960]
r960
transaction of sale took place. No income arose or accrued on
the sale proceeds at the time of each sale.
Cotton Agent' Ltd,
E. D. Sassoon and Company Ltd. v. Commissioner of Income_•·.
tax, Bombay, [1955] l S.C.R. 313, referred to.
Commimoner of
L k
·
G
l
d 5
Th
Tncome-lax
a shminarayan Ram
opa an
ons v.
e Government of
Hyderabad, [r955] r S.C.R. 393, followed.
Commissioners of Inland Revenue v. Gardner Mountain &
D'Ambrumenil Ltd., (r947) 29 T.C. 69 and Turner Morrison &
Co. Ltd. v. Commissioner of Income-tax, West Bengal., [r953] 23
I.T.R. 152, distinguished.
-:-. 1

## Text

Chandaji
Kubaji & Co.
v.
State of A ndhra
P-radesh
S. K. Das].
x960
May3.
810
SUPREME COURT REPORTS
[1960]
on deliberate negligence and fraud and amounts to
allowing a party to profit from its own wrong. We
do not think that such a construction follows from
the language used, which is more consistent with the
view that the provision ins. 12A(6)(a) permits a review
when through some oversight, mistake or error the
necessary facts, basic or evidentiary, were not present
before the Court when it passed the order sought to be
reviewed. It is entirely wrong to think that the subsection permits a party to play hide and seek with a
judicial Tribunal; that is to say to raise a fact in issue
or evidentiary fact as a plea in support of a claim and
at the same time deliberately withhold the evidence
in support thereof. Such a situation cannot be said
to be one within the meaning of the expression "facts
not present before the Tribunal ".
In the appeals before us there was intentional withholding or suppression of evidence. In the case, the
materials were not produced on the plea that they
were written in Gujrati and nobody was avail:;tble to
instruct counsel in English or Telugu and in the other,
on an equally specious plea that the correspondence
was mixed up with other records for about two years.
These two appeals can be disposed of on this short
ground that the appellant was not entitled to ask for
review under s. 12A(6)(a) by reason of his own deliberate negligence and intentional withholding of evidence.
We see no merit in these appeals and dismiss them
with costs.
Appeals dismissed.
THE COTTON AGENTS LTD., BOMBAY
v.
COMMISSIONER OF INCOME-TAX,
BOMBAY.
.
(S. K. DAS and M. HrnAYATULLAH, JJ.)
Income-tax-Managing Agency Agreement-Proper construction
of-Commission on sale proceeds of the managed company-Time of
accruing.
Messrs. Shivnarayan Surajmal Nomani were the managing
agents of the New Swadeshi Mills of Ahmedabad Ltd. The
Nemani group and the appellant-company which is the assessee
-
-
,J .. ,..,. ...
3 · S.C.R. SUPREME COURT REPORTS
811
held a substantial number of shares of the said mills. Sometime
z96o
'in 1944 some difference arose between them and it was decided
--
that the Nemani group should sell its block of shares to the Cotton A gents l.td.
appellant company at an agreed price and then the appellant
v.
company would become the managing agents of the mills comCommissioner 0!
Income-tax
pany on payment of Rs. 5,00,000 to the Nemani group and would
be entitled to the emoluments of the managing agents as from
April l, 1944· , The relevant portion of the Managing Agency
Agreement ran thus :-
" (2) The remuneration of the agents as such agents of the
company as aforesaid shall be as follows :-
A commission at the rate of three and a half per cent. on the
gross proceeds of all sales of the yarn, cloth, waste and other
articles manufactured by the company earned in any year or
other period for which the accounts of the company are made
up and laid before the General Meeting."
" (3) The said commission shall become due to the Managing
Agents at the end of each financial year or other period for which
the accounts of the company are to be laid before the General
, Meeting and shall be payable and paid immediately after such
accounts have been passed by the General Meeting."
The assessment year was 1946-47, and the year ending with
Diwali, 1945 (October 18, 1944, to November 4, 1945) was the
accounting year. The managing agency commission from Aprill,
1944, to December 31, 1944, amounted to Rs. 2,20>433 and from
January l, 1945, to March 31, 1945, to Rs. 67,959.
The case of
the appellant-company was that for the assessment year 1946-47
it was liable to pay tax only on the commission of Rs. 67,959
which it had earned by working as managing agent of the Mills
company and it was not liable to pay tax on the sum of
Rs. 2,20>433· On a difference of opinion having arisen between
the departmental taxing authorities and the Tribunal the following question was referred to the High Court for decision :-
" Whether on the facts and circumstances of the case the
managing agency commission of 3!% on sales made by the
New Swadeshi Mills of Ahmedabad Ltd., between April l, 1944,
and December 31, 1944, accrued to Shivnarayan Surajmal
Nemani or to the assessee ? "
. The High Court following the decision of the Supreme Court
in E. D. Sassoon and Company Ltd. v. Commissioner of Income-tax,
Bombay City, held that the appellant company was liable to pay
tax on the whole of the commission as the commission accrued
due on March 31, 1945, and they became entitled to receive it at
the end of the year; it also held that no debt was created in
favour of the agents when the goods were sold. On appeal by
the a:ssessee company on a certificate of the High Court :
Held, that the view of the High Court was correct. The
commission. of the managing agents accrued and became due at
the end of the financial year and that neither any debt nor any
right to receive payment arose in favour of the a~enb• when each
812
SUPREME COURT REPORTS
[1960]
r960
transaction of sale took place. No income arose or accrued on
the sale proceeds at the time of each sale.
Cotton Agent' Ltd,
E. D. Sassoon and Company Ltd. v. Commissioner of Income_•·.
tax, Bombay, [1955] l S.C.R. 313, referred to.
Commimoner of
L k
·
G
l
d 5
Th
Tncome-lax
a shminarayan Ram
opa an
ons v.
e Government of
Hyderabad, [r955] r S.C.R. 393, followed.
Commissioners of Inland Revenue v. Gardner Mountain &
D'Ambrumenil Ltd., (r947) 29 T.C. 69 and Turner Morrison &
Co. Ltd. v. Commissioner of Income-tax, West Bengal., [r953] 23
I.T.R. 152, distinguished.
-:-. 1
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 100 of 1959.
Appeal from the judgment and order dated
February 11, 1957, of the Bombay High Court in
Income-tax Reference No. 53 of 1956.
R. J. Kolah, Dwarkadas, S. N. Andley, J.B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the
appellants.
K. N. Rajagopal Sastri and D. Gupta, for the respondent.
1960.
May 3.
The Judgment of the Court was
delivered by
s. K. D•" J.
S. K. DAS, J.-This is an appeal on a certificate
granted by the High Court of Bombay, under s. 66A (2)
of the Indian Income-tax Act, l922. The short facts
are these. The Cotton Agents Limited, Bombay, are a
limited liability company registered under the Indian
Companies Act and will be called the assessee Company in this judgment. It held a substantial number
of shares of the New Swadeshi Mills of Ahmedabad,
Ltd. (hereinafter called the Mills Company). Messrs.
Shivnarayan Surajmal Nemani (called the Nemani
group) also held a block of shares of the Mills Company
along with its managing agency. The assessment year
was 1946-47, and the year ending with Diwali, 1945
(October 18, 1944, to November 4, 1945) was the
accounting year. Sometime in 1944 so.me differences
arose between the assessee Company and the Nemani
group; these
differences
were referred to one
Govindram Seksaria, who decided that the Nemani
group should sell its block of shares to the assessee
Compa.ny e,t an agreed price. It was further decided
... <:>..-
·~ • l 1
....
.,.. ••
•
..
3 S.C.R.
SUPREME COURT REPORTS
813
that a sum of Rs. 5,00,000 be paid by the assessee
x9i;o
Compa~y to the Ne~ahni grTouh:p as the price tof the Cotton Agents Ltd;
managmg agency rig ts.
1s arrangemen
was
v.
approved by the share-holders of the Mills Company aommissiomr of
by a resolution dated January 4, 1945, and came into
·Income-ta~
effect immediately. The agreement further was that
th
C
Id
·
·
S,K.Dasj.
e assessee
ompany wou · come m as managmg
agents of the Mills Company in place of the Nemani
group and would be entitled to the emoluments of the
managing agents as from Aprill, 1944. The managing
agency commission from April 1, 1944, to December 31,
1944, amounted to Rs. 2,20,433 and from January 1,
1945, to March 31, 1945, to Rs. 67,959. The case of the
assessee Company was that for the assessment year
1!146-4 7 it was liable to pay tax only on the commission
of Rs. 67,959 which it had earned by working as
managing agent of the Mills Company and it was not
liable to pay tax on the sum of Rs. 2,20,433. This
contention of the assessee Company was not accepted
by the departmental taxing authorities; but the Tribunal decided in its favour.
The assessee Company's
case before the Tribunal was that as the managing
agency commission was based on the sales, the commission accrued to the managing agents as and when
the sales were made and furthermore the sum of
Rs. 5,00,000 paid by the assessee Company to the
retiring managing agents included the purchase price
of the mana.ging agency commission which had accrued
in the hands of the retiring agents. The Tribunal
expressed the view that on a true construction of the
relevant managing agency agreement, the 3! per cent.
commission on sales made when the Nemani group
was the managing agent accrued to that group and
not to the assessee Company and thus a debt was
created in favour of the Nemani group on every sale
during its period of managing agency and only the
payment of the debt was deferred till the accounts of
the Mills Company were passed at a general meeting;
therefore, the commission prior to the close of the year
1944 was assessable in the hands of the Nemani group
and thereafter in the hands of the assessee Compa:1y.
The Department, however, contended that the whole
iw
814
SUPREME COURT REPORTS
[1960]
of the managing agency commission accrued to the
assessee.
Thereupon, at the instance of the DepartCotton A;,ents Ltd. ment, the Tribunal referred the following question of
commissioner of law to the High Court for decision :-
Income-tax
"Whether on the facts and circumstances of the
S. J(. Das J.
case the managing agency commission at 3t% on
sales made by the New Swadeshi Mills of Ahmed a bad
Ltd., between April I, 1944, and December 31, 1944,
accrued to Shivnarayan Surajmal Nemani, or to the
assessee ? ''
The High Court hEild that the matter was concluded
by the decision of this Court in E. D. Sassoon and
Company Ltd. v. Commissioner of Income-tax, Bombay
City (' ). With reference to the argument of learned
counsel for the assessee Company that the commission
was payable on the sale proceeds and not on the
profits as in Sassoon's case('), it said:
"We would have given serious thought to this
aspect of the matter but for the view we take that
the decision of the Supreme Court with regard to the
question of creation of the debt and with regard to
the serving by the managing agents for a term of one
year being a condition precedent for their being
entitled to receive payment, is indistinguishable on
the facts of this case.
We may point out that here
as in the Sassoon's case(') the commission of 3t per
cent. is to be earned in any year, and also by clause 3
of the agreement the commission is to become due
to the managing agents at the end of each financial
year. Therefore, till the end of the financial year
there is no debt whatsoever created in favour of the
managing agents and also their right to receive
payment depends upon their having served for a
whole year. Under the circumstances we must hold,
following the decision of the Supreme Court, that
the assessees are liable to pay tax on the whole of
the commission as the commission accrued due on
March 31, 1945, and they became entitled to
receive it at the end of the year. We do not agree
with the view of the Tribunal that according to the
agreement of the managing agents the debt was
(1) [1955] 1 S.C.R. 313.
. -
,.J
.f
3 S.C.R. SUPREME COURT REPORTS
815
created in favour of the agents when the goods were
1960
sold by the company and that the pay~ent was Cotton Agents Lta;
deferred to a date after the accounts havrng been
v.
passed by the shareholders in the. general meeting ·Commission.r nf
of the company. In no view of the case can it be,
Income-tax
said that the debt was created in favour of the
agents when the goods were sold".
s. K. Das.!-
The answer to the question really depends on a construction of the relevant terms of the managing
agency agreement dated March 15, 1925, entered into
between the Mills Company and the Nemani group.
Before we proceed to a consideration of those terms
it is necessary to state that the Department has assessed the Nemani group also to tax in respect of the
commission for the period April 1, 1944, to December 31, 1944. That circumstance has, however, no
bearing on the question of construction and learned
counsel for the Department has stated before us that
there is no intention to tax two parties for the same
income and if the tax has been realised from both fol'
the same income, it will have to be refunded to one
of the two parties after the decision of this Court.
We are not considering in this case the validity or
otherwise of what are known as protective or precautionary assessments, and nothing said in this judgment has any bearing on that question.
We go at once to the Managing Agency Agreement
dated March 15, 1925. Under that agreement the
managing agents were appointed for a period of fifty·
one years, but with liberty to them to resign the
appointment and retire from the agency at any time
by twelve calendar months' notice in writing, such
notice to t:ixpire at the end of any financial year of the
Mills Company. Then came els. (2) and (3) of the
agreement, which are material and must be quoted so
far as they are necessary for our purpose :-
" (2) The remuneration of the Agents as -such
Agents of the Company as aforesaid shall be as
follows:-
A commission at the rate of three and a half
per cent. on the gross proceeds of .all sales of the
yarn, cloth, waste and other articles manufactured
Cotton Agents Ltd.
v.
Commissioner of
Income-ta%
s. K.t'Das J.
816
SUPREME COURT REPORTS
[1960)
by the Company earned in any year or other period
for which the accounts of the Company are made
up and laid before the General Meeting."
Provided, etc., (it is unnecessary to quote the
proviso).
" (3) The said commission shall become due to
the Ma.naging Agents at the end of each financial
year or other period for whieh the accounts of the
Company are to be laid before the General Meeting
and shall be payable and paid immediately after
such accounts have been passed by the General
Meeting".
Clauses (6) to (11) recited the rights and duties of the
managing agents, one of such rights being to retain,
reimburse and pay themselves "all sums due to the
agents for commission". Clauses (13) and (14) dealt
with the right to assign the remuneration and the
managing agency, and said inter alia that" it shall be
lawful for the agents to assign this agreement and
the benefit thereof and their rights and privileges, etc.,
to any person or firm or company having authority
by its constitution to become bound by the obligations
undertaken by the agents ........................... and the
Company shall be bound to recognise the person, firm
or company aforesaid as the agents of the Company".
It is unnecessary to read the other clauses of the
managing agency agreement.
The controversy before us hinges really on the scope
and effect of clauses (2) and (3), read in the context
of the agreement as a whole. On behalf of the assessee
Company the argument is that under cl. (2) the managing agency remuneration accrued at the rate of
3! per cent. on the gross proceeds of all sales; the
word " all" is emphasised, and it is argued that the
remuneration accrued as ea.ch sale took place, the
totality of sales giving the gross sale proceeds. It is
argued that embedded in each sale was the managing
agency commission of the assessee Company. It is
further sug£lested on behalf of the assessee Company
that though cl. (3) uses the word " due '', it merely
inr1irat.ed the time of payment and not that of accrual,
•
3 8.C.R.
SUPREME COURT REPORTS
817
We do not think that this reading of the two clauses
r960
is correct. In our view, cl. (3) is the accrual clause;
-- .
.
it shows that the commission became due at the end Cotton Agents Ud.
of each financial year or other period for which the Commi;;ioner of
accounts of the Mills Company were to be laid before
inoome-tax
the General Meeting. Significantly enough, the clause
consists of two parts; one part says when the coms, K. Das J;
mission becomes due and the other says when it is to
be payable and paid. In very clear terms, the clause
says that the commission becomes due normally at
the end of the financial year, but is payable after the
accounts have been passed by the General Meeting.
Let us contrast cl. (3) with cl. (2).
Clause (2) states
how the remuneration has to be calculated. It says
in effect that the remuneration has to be cn.lculated
at the rate of 3! per cent. on the gross proceeds of all
sales, etc., earned in any year or other period for which
the accounts of the Mills Company are made up.
Putting the two clauses side by side, the conclusion at
which we have arrived is that in their true scope and
effect cl. (3) determines the time of accrual of the
managing agency remuneration and cl. (2) determines
the rate at which the remuneration is to be calculated;
and as to the time of payment, that is determined by
the second part of cl. (3).
-
This view of the managing agency agreement of
March 15, 1925, concludes the appeal. If the remuneration accrued at the end of the financial year, then
undoubtedly it accrued in the hands of the assessee
Company. It remains now to refer briefly to some
of the decisions cited at the Bar.
As to th~ decision in Sassoon'8 case(1) it is pointed out
that the commission there payable by way of remuneration was a percentage on the net profits and this, -
it is argued for the assessee Company, distinguishes
that decision from the present case. Indeed, it is true
that in Sassoon's case (1) the remuneration was fixed at
a percentage on the net profits, but the real point of
the decision was as to when the remuneration accrued.
On this point the majority of learned Judges said:
(t) (1q551 r 1>.C.R. 313.
818
SUPREME COURT REPORTS
(1960]
1960
"It is clear therefore that income may accrue to an
Cotton A,gents Lid. assessee without ~he actu.al receipt o~ the sa~e. If
v.
the assessee acqmres a right to receive the mcome,
Commissioner of the income can be said to have accrued to him though
Income-lo~
it may be received later on its being ascertained. The
basic conception is that he must have acquired a
s. K. Das f·
right to receive the income. There must be a debt
owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in
futuro: see W. S. Try Ltd. v. Johnson(') and Webb v.
Stenton (').
Unless and until there is created in favour
of the assessee a debt due by somebody it cannot be
said that he had acquired a right to receive the income
or that income has accrued to him".
It has been argued before us that the decision
requires reconsideration because it failed to make a
further distinction, a distinction which it is stated
arises in law, between the right to receive payment
and the creation of a debt. We consider it unnecessary to consider such a distinction, if any such exists,
in the present case. On our view of the managing
agency agreement, the commission of the managing
agents became due at the end of the financial year and
that is when it accrued; and there were neither any
debt created nor any right to receive payment when
each transaction of sale took place.
We were also
addressed at some length on the further question
whether managing agency is service and if so,
whether it must be for one full year or whether apportionment is permissible.
These questions do not
fall for decision in the present case and we express
no opinion thereon.
We have proceeded in this case
on the footing that the managing agency work of the
assessee Company constituted business within the rule
of the decision in Lakshminarayan Ram GopaJ, and
Sons Ltd. v. The Government of Hyderabad(') and on
that footing we have decided the question of accrual.
In Commissioners of Inland Revenue v. Gardner Mountain & D'AmbrumenilLtd. ('),on which learned counsel
for the appellant placed reliance, the facts were quite
(1) [1946] I All E.R. 53Z. 539·
(3) (1955] (1) S.C.R. 393.
(2) [1883] II Q.B D. 518, 522. 527.
(4) (1941] 29 T.C. Lg.
' --
3 S.C.R
SUPREME COURT REPORTS
819
different and on a true construction of the agreements
1960
there, it was held that the commission payable under
-
·
d
·
'
t
· th
· Cotton Agents Ltd
certam un er-writers agreemen s arose m
e year m
which the policies were underwritten. That decision Commi;;ioner of
proceeded on a construction of the agreements there
Income-tax
considered ; and it is no authority for construing
other agreements of a different character. Learned
s. K Das J.
counsel for the appellant relied on Turner Morrison &
Co. Ltd. v. Commissioner of Income-tax, West Bengal(1)
for his contention that in the sale proceeds of each
transaction of sale were embedded the income, profits'
or gains to be earned by the managing agents and,
therefore, the accrual took place on each transaction,
ofsale. The observations at page 160 of the report
on which reliance was placed were made in a different
context, namely, in the context of the place of receipt
of income in relation to the provisions of s. 4(l)(a) of
the Income-tax Act.
Learned counsel for the respondent has pointed out
to us that the observations of Lord Justice Fry
in Colquhoun v. Brooks (2) were not very accurately
reproduced in Rogers Pyatt Shellac and Co. v. Secretary of State for India (3). He submitted that Lord
Justice Fry did not say that the words " accrual" or
"arising" represented a stage anterior to the point of
time when the income becomes receivable and connote a
character of the income which is more or less inchoate.
He has argued that there is nothing inchoate about the
income when it arises or accrues.
We consider it unnecessary to embark on a discussion as to how far the
aforesaid observations require consideration by us.
It is enough to say that on the view which we have
taken of the relevant clauses of the managing agency
agreement, no income arose or accrued on the sale
proceeds at the time of each transaction of sale ; the
income accrued at the end of the financial year at the
rate of 3! per cent. on t}ie gross proceeds of all sales
of yarn, cloth, waste, etc., earned in any one year. In
that view of the matter, the High Court correctly
answered the question.
The appeal fails and is dismissed with costs.
Appeal dismissed.
(r) [r953] 23 I.T.R. r52.
(2) (r888) 21 Q.B.D. 52, 59.
<3l (1924111.r.c. 363, 372,