# Shnnrji Vn!lnhhrfns & Co v. r:ommissioner of hvo1w~·ln.\., F.xr1.u Prnjils TaxJ lJmnbn)'

- **Citation:** [1960] 3 S.C.R. 557
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Bench:** S. K. DAs, J. L. Kapur, M. HmAYATHULLAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shnnrji-vn-lnhhrfns-co-v-r-ommissioner-of-hvo1w-ln-f-xr1-u-prnjils-taxj-ljmnbn-1748
- **Pages:** 14

## Headnote

Income-tax-Place of accrual of income-Business of transporting cargo to ports in and outside British
India-Managing
Agency commission, a percentage of freightage-Managing agents'
services f erf armed in British lndia~Liability to tax of, entire ·manag-
--,
ing agency commission-Excess Profits Tax Act, 1940 (15 of 1940),
s. 5, proviso 3-lndian Income-tax Act, 1922 (II of 1922), s. 14(2)(c).
,
The appellant was the ma~aging agent of a company which
was, at the relevant time, carrying on the· business of transporting
cargo in boats which touched ports in British India and in the
Indian State of Cochin and other States.
Under the
managing
agency contract the remuneration payable to the appellant was
• ·
expressed in the following terms : "That the managing agent shall
as and by way of remuneration for its services receive a commission of ten per cent. of the gross freight charged to the shippers ...
Such remuneration shall be payable to the ·managing. agents at
the place where the same is earned ·by the company unless otherwise requested by the managing agent." The Income-tax Officer
and the Excess Profits Tax Officer assessed the appellant to tax
in respect of the whole of the managing commission received by
it · on the footing that the entire commission accrued or arose in
British India.
The appellant claimed that a part of the managing agency commission accrued in the Indian States and not in
British India· and that it would be entitled to an apportionment
of the managing agency commission and to claim exemption from
tax in respect of. the commission which accrued outside British
India under s. 14(2)(c) of the Indian Income-tax Act, 1922, and
the third ,proviso to s. 5 of the _Excess Profits Tax Act, 1940. The
Appellate Tribunal found that' except booking and collecting some
freight at Cochin,
all other important and responsible work of
managing the company was done from the head office at Bombay
and not 'from Cochin:
·
Held, that normally the commission payable to the managing
agent of a company accrues at the place where the business is
actually done, that is, where rthe services of the managing agent are
performed, and as ·On ·the finding in the present case the appellant
practically .performed all the services at Bombay, the commission
which it earned though computed on the· percentage of freight,
accrued or arose in British India.
Commissioner of Income-tax, Madras v. K. R. M. T. T. Thiagaraja Chetty and Co., [1950] S.C.R. 258, followed.
Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai
and Co., Bombay, [1950] S.C.R. 335 and Commissioner of lncometax, Bombay Presidency 'ilnd Aden v. Ghunilal B. Mehta, [19381
6 I.T.R. 521, distinguised.
9-6 SCT/ND/82
1960
April 19.
1960
Shnnrji Vn!lnhhrfns
& Co.
v.
r:ommissioner of
hvo1w~·ln.\.,
F.xr1.u Prnjils TaxJ
lJmnbn)'
S. It. Dns .J.
558
SUl'REME COURT REPORTS
[1960]
Salt and Industries AF;encies Ltd., Bombay v. Comtnissioner of
Income-tax, Bombay City, [1950] 18 I.T.R. 58, considered.
C1v1L
APPELLATE
juR1smcr10:-.;:
Civil Appeal
No. ~0:) of l 'lti:i.
Appeal by special leave from the .indgment :rnd order
dated March 81, 111:)2, and .\larch 2, l9:i'l, of the Bombay High Court, in Income-tax Reference No. '18
of l'l:il.
R. .T. Ko/ah; Solirab N. Vnhil and S. N. A11dlr)•. for
the appellant.
C. K. Daf1litmy, Solicifor-Ger1eral of India, R. Gnnnpnthy l)•Cr and D. Gup!a, for the respondent.
l %0.
April l'l.
The .Judgment of the Court was
delivered by
S. K. DAs, .J.-This is an appeal "'ith special leave
from the judgment and orders elated March 'll.
1 !J02,
:rncl .\-l:irch 2, l 11.'i'l, of the High Court of Bombay in
an I 11comc-I ax Reference No. -18 of l 'l!i 1 made by the
Income-tax Appelbtc Tribunal, Bombay, under s. li6(l)
of the Indian Income-tax Act, l'l22, aml s. 21 of the
Excess Profits Tax Act, 1940.
\\'e mav shortly state the relevant facts first.
The
assessce, i\lcssrs.
Shoorji Vallabhdas and
Company,
Bomh:11•, appellant herein, is a firm registered under
the Indian
Income

## Text

3 S.C.R.
SUPREJVIE: COURT REPORTS
SHOORJI VALLABHDAS & CO., BOMBAY
.v.
557
THE 1COMMISSIONER OF 1NCOME-T AX/EXCESS
PROFITS TAX, BOMBAY.
(S. K. DAs, .J. L. KAPUR and M. HmAYATHULLAH, JJ.)
Income-tax-Place of accrual of income-Business of transporting cargo to ports in and outside British
India-Managing
Agency commission, a percentage of freightage-Managing agents'
services f erf armed in British lndia~Liability to tax of, entire ·manag-
--,
ing agency commission-Excess Profits Tax Act, 1940 (15 of 1940),
s. 5, proviso 3-lndian Income-tax Act, 1922 (II of 1922), s. 14(2)(c).
,
The appellant was the ma~aging agent of a company which
was, at the relevant time, carrying on the· business of transporting
cargo in boats which touched ports in British India and in the
Indian State of Cochin and other States.
Under the
managing
agency contract the remuneration payable to the appellant was
• ·
expressed in the following terms : "That the managing agent shall
as and by way of remuneration for its services receive a commission of ten per cent. of the gross freight charged to the shippers ...
Such remuneration shall be payable to the ·managing. agents at
the place where the same is earned ·by the company unless otherwise requested by the managing agent." The Income-tax Officer
and the Excess Profits Tax Officer assessed the appellant to tax
in respect of the whole of the managing commission received by
it · on the footing that the entire commission accrued or arose in
British India.
The appellant claimed that a part of the managing agency commission accrued in the Indian States and not in
British India· and that it would be entitled to an apportionment
of the managing agency commission and to claim exemption from
tax in respect of. the commission which accrued outside British
India under s. 14(2)(c) of the Indian Income-tax Act, 1922, and
the third ,proviso to s. 5 of the _Excess Profits Tax Act, 1940. The
Appellate Tribunal found that' except booking and collecting some
freight at Cochin,
all other important and responsible work of
managing the company was done from the head office at Bombay
and not 'from Cochin:
·
Held, that normally the commission payable to the managing
agent of a company accrues at the place where the business is
actually done, that is, where rthe services of the managing agent are
performed, and as ·On ·the finding in the present case the appellant
practically .performed all the services at Bombay, the commission
which it earned though computed on the· percentage of freight,
accrued or arose in British India.
Commissioner of Income-tax, Madras v. K. R. M. T. T. Thiagaraja Chetty and Co., [1950] S.C.R. 258, followed.
Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai
and Co., Bombay, [1950] S.C.R. 335 and Commissioner of lncometax, Bombay Presidency 'ilnd Aden v. Ghunilal B. Mehta, [19381
6 I.T.R. 521, distinguised.
9-6 SCT/ND/82
1960
April 19.
1960
Shnnrji Vn!lnhhrfns
& Co.
v.
r:ommissioner of
hvo1w~·ln.\.,
F.xr1.u Prnjils TaxJ
lJmnbn)'
S. It. Dns .J.
558
SUl'REME COURT REPORTS
[1960]
Salt and Industries AF;encies Ltd., Bombay v. Comtnissioner of
Income-tax, Bombay City, [1950] 18 I.T.R. 58, considered.
C1v1L
APPELLATE
juR1smcr10:-.;:
Civil Appeal
No. ~0:) of l 'lti:i.
Appeal by special leave from the .indgment :rnd order
dated March 81, 111:)2, and .\larch 2, l9:i'l, of the Bombay High Court, in Income-tax Reference No. '18
of l'l:il.
R. .T. Ko/ah; Solirab N. Vnhil and S. N. A11dlr)•. for
the appellant.
C. K. Daf1litmy, Solicifor-Ger1eral of India, R. Gnnnpnthy l)•Cr and D. Gup!a, for the respondent.
l %0.
April l'l.
The .Judgment of the Court was
delivered by
S. K. DAs, .J.-This is an appeal "'ith special leave
from the judgment and orders elated March 'll.
1 !J02,
:rncl .\-l:irch 2, l 11.'i'l, of the High Court of Bombay in
an I 11comc-I ax Reference No. -18 of l 'l!i 1 made by the
Income-tax Appelbtc Tribunal, Bombay, under s. li6(l)
of the Indian Income-tax Act, l'l22, aml s. 21 of the
Excess Profits Tax Act, 1940.
\\'e mav shortly state the relevant facts first.
The
assessce, i\lcssrs.
Shoorji Vallabhdas and
Company,
Bomh:11•, appellant herein, is a firm registered under
the Indian
Income-tax
Act.
It helrl the managing
agency of three companies,
namely-(l) the Mahibar
Steamship
Company Ltd.,
(2)
the
:\'cw
Dholcra
Steamships Ltd..
and (3) the ;'\cw Dholera Shipping
and Trading Comp:rny Ltd., for the periods material
in this case.
The appellant as cilso the aforesaid three
managed companies were resident in the taxable territories within the meaning·
of the Indian Income-tax
Act.
The business of the i\Tabbar Steamship Company Ltd. and of the Nrn· Dholera Steamships Ltd.
was ro carry cargo in cargo boats which touched ports
in British Inclia, Cochin State. TraYancore State and
Saurashtra, as they were then known.
The appellant
became the managing agent of the i\lalahar Steamship
Comp:im· Ltd. "·ith effect from April l, l 94.3, and the
firm consisted of Shoorji Vallabhdas and his two sons.
Formerly, Shoorji Vallabhdas alone "·as the managing
agent of the i\blabar Steamship Companv Ltd. and a
managing :ip;ency
:1greement dated
September
l Ii,
·-
•
.. .
)
3 S.C.R.
SUPREME COURT REPORTS
559
1938, was executed between the managing agent and
the managed company, and. that agreement as varied
by two subsequent:
deeds dated June 26,
1942, and
December 7, l 943, constituted the contract of managing agency between
the appellant and the managed
company.
Under the
managing agency contract the
remuneration payable to the appellant after September I, 19-1\ was expressed in the following terms:
"That the remuneration of the Managing Agents as
and from 1st September one thousand nine hundred
and forty-three shall be ten per cent. ( 10%) on the
freight charged to the shippers instead of annas fourteen per ton as mentioned in clause ( 1) of the said first
supplemental agreement: dated the 26th clay of June,
194~~."
The managmg agency agreement
dated June 8,
l 94(:i, between the appellant and the second managed
company,
New Dholera
Steamships Ltd.,
provided
inter alia as follows:
wfhat the Managing Agents shall as and by way of
remuneration for their services in relation to the shipping business of the Company receive a
commission
of ten per cent. (IO'j';,) of the gross freight charged to
the shippern and/or
passage money
charged to the
passengers.
Such
remuneration shall
be payable to
the l\fanag·ing Agents
at the place where the same is
earned by the Company unless otherwise requested by
the Managing Agents.
The remuneration of the
Managing Agents
in
relation
to
the
business of
Company other than the shipping bminess shall
be
(10%) ten per cent. on the gross profits that may be
earned in such business."
It may be· stated here,
however, that
no question
arose as to the remuneration of the Managing Agent in
1relat:ion
to business other than
shipping
business,
because no business other than shipping business was
carried on by the managed
company during the relevant period.
The third managed Company, viz., the New Dholera
Shipping and
Trading Company Ltd.,
confined its
husi ness during the relevant accounting period to
stevedoring and trading only.
The managing agency
agreement also elated June 8, 19,16, with the third
1960
Slwo1ji Vallobhdas
& Co.
v.
Commissioner of
lncOme-tax/
~Excess Profits Tax,
Bombay
S. K. Das J.
1960
ShoorJi Valtabhdaj
& Co.
v.
(.'ommissio1ur of
lncome~lax/
Excess Profits Tax,
Bombn.Ji
S. K. Da' J.
560
SUPRElVIE COURT REPORTS
[1960]
managed company
provided inter alia
for the payment of remuneration in the following terms:
"That the Managing Agents shall as and by way of
remuneration for their services receive a commission
at the rate of 25 per cent. of
the net: profits of the
co.mpany.
Such remuneration shall be payable to the
Managing Agents al the place where the same is earned by t.hc Managing Agents unless otherwise requested
by the Managing Agents."
The appellant was assessed lo
income-tax
fur three
assessment years,
namely, 1915-1946,
19·16-1947
and
I 94 7-1948, the previous ye an being t.he financial
years 1944-1945, I 94fi-l 'J-16 and l 94 6-1 !J47 respectively.
The appellant was
likewise assessed lo
excess profits
tax under t.he Excess Profits Tax Act, 1940, for the
respective chargeable accounting periods which were
also three in number, namely, Apt ii I, 1943, to March
31, 1944, Aprill, 1944, to March 31, 1'!45, and Aprill,
1945, to March 31, 1946.
The Tncome-tax Officer and
the Excess Profits Tax Officer assessed the appellant
to tax in respect. of the whole of the managing agency
commission received
from the three
m'111aged companies on the footing that the entire managing· agency
commission accrued or arose in
British India.
The
appellant went up in appeal to the Appellate Assistant
Commissioner from
the assessment orders on the
ground inter alia that. a part of the managing ag·ency
commission received
from the three
managed companies accrued in the Cochin and TraYancore States
and not in
British India and was
therefore exempt
from tax under the relevant provisions (as they stood
at the material time) of the
Indian Income-tax Act,
1922, and the Excess Profits Tax Act, 1940.
Thus,
the dispute was about the place of accrual of the income in question.
As to the managed companies, the
Income-tax authorities accepted the position that the
profits of the three managed companies partly accrued
in British India and partly in the Indian States; but
they did not accept the claim of the appellant that
part of
its 111a11agi.ng agency
con1n1ission
fron1 the
three rnanag-ecl
companies accrued
or arose in the
Cochin and Travancore Srates.
The Appellate Assistant.
Commissioner hy
different
orders
all
dated
. .
r
~
T
- -
3·S.C.R.
StJPR
1l~}ME 'C0UR'r REPORTS
561
May 4, 1950, dimissecl all the appeals.
The Appellant went in appeal to the Income-tax Appellate
Tribunal.
Bv its order elated December 11, 1950, the
Tribunal also. dismissed_ the appeals.
·
The appellant
then made an
application to the
Tribunal to refer certain questions of law which arose
out of its order, to the High Court of Bombay. The
Tribunal referred two such questions:
" ( l) Did a part of the managing agency commission
earned by the assessee accrue or arise in the Cochin
State inasmuch as the managing agency commission is
· computed on the basis of . the freight earned
by the
managed company in the Cochin State or otherwise?
(2) Did the whole or part of the dividend income
accrue or arise in the Cochin State?"
The expression Cochin State in the questions obviously
referred to both Cochin and
Travancore States.
On
l'>'larch 31, 1952, the reference ·came up for consideration before the High Court, and after hearing Counsel,
the High Court reformulated the first question as
follows:
"vVhere the actual
business of
managrng agency
was done which yielded
the
commission
which is
sought to be taxed?"
The High Court directed the Tribunal to submit a
supplemental statement of the case on the first question as reformulated.
The second question was not
pressed by learned counsel for the appellant and does
not no\1r survive.
, The Tribunal submitted a supplemental statement
of the case on August 29, 1952 .. The reference was
fipally heard on March 2, 1953,
and the High Court
answered
the
question by saying that
the
actual
business of the managing agency
which yielded the
commission was done at Bombay and not at Cochin.
In arriving at the conclusion the High Court proceeded
on the footing that the finding of the Tribunal in
effect was that
baning freight
and collecting it at
Cochin, all other important' and responsible work of
managi11g the managed companies was clone from the
head office at: Bombay.
It has been argued on behalf of the appellant that
the High Court erroneously reformulated the question,
1960
Shoo1ji Vallabhdas
& r:o.
v.
Commissioner of
lncome-tox/
Excess Profits Tax,
Bombay
S. K. Das J.
\ ....
562
SUPREME COURT REPORTS
[ 1960J
JY6o
and that the real
question of law is whether on the
facts and circunrstances of
the· case, an !'art of the
Slwa1ji V11/Lc.bhdas
& Co.
111anagi11g agency co1nn1ission accruccl outside British
c,,,,,,.;:,;,,,u of
lndia so that the appellant would be entitled to an
lucom~-tax/
ap}JOrtionrnc11t of the 1na11aging agency
co1nn11ss1011
E:i:cess Pro.lits T
11x, ancl to clain1 exetll)Jtion fro111
tax i11 resjJCCt of tl1e
Bombay
commission which accrued outside British lndia under
s. K. Va> J.
s. 14(2)( c) of the I nclian
l ncome-tax Act,
1 YZZ (as it
then stood) and the third proviso to s. 5 of the Excess
Profits Tax Act, 1940.
IL has been further contended
that in vie11· of the findings of the Tribunal that (a)
the commission earned was a pcrcentag·e of the freight
and passage money received by two of the managed
companies in Cochin and Travancorc States, (b) a part
of the commission "·as payable there and (c) a part of the
services was also rendered by the appellant: as manag·
ing agent in those States, the High Court was in error
in coming to its conclusion
that the
\\'hole of the
1nanaging agency co1nn1i~sion accruell or at"ose in Bon1~
bay.
Whil.e 11·e agree with learned
coumcl for the
appellant that the real <1ucstion in this case is 11·hether
any part of the 111anaging agency co111111ission accrued
outside British J nclia, we do not agree with him that
the High Court was wrong in reformulating the ques·
tion.
The Tribunal formulated the question as though
the computation of the appellant's remuneration on
the basis of freight det:ennincd
the place of accrual;
in this the Tribunal was in error, and the High Court
rightly pointed out that the test to he applied "·as not
how the remuneratiop was to be computed or quanti·
fled, but where the services "·ere performed
by the
appellant, which yielded the profits sought to be t;ixed.
The High Coun rightly reformulated the question ou
that basis, and asked the Tribunal to submit a supplemental statement of the case on the matcri;tls avaihiblc
and placed before it by the appellant bearing on the
question as reformulated by the I-lig·h Court.
\Vhat did the Tribunal find in
this case as
to the
place "·here the actual
business was done,
i.e..
!he
services were performed by the appellant as rnanag111g
;went which vieklccl the commission?
After referring
h
•
-
'
"
t~ the :igrrrments rcl:11ing to the cornp1llat ion of
remuneration, the Trib1!11al said in its order dated
. -
-
..
-·
-
)
· 3 S.C.R.
SUPREME COURT REPORTS
563
December l 1, 1 <J:)O, that (a) from time to time one of
the p:1rtners of the appellant firm went to Cochin to
attend to the business, (b) the managed companies had
an officer in Cochin,
and ( c) the
payments said to
have been made to certain employees at Cochin were
fictitioi:1s.
In the supplementary statement,
the Tribunal pointed out that it was not known ,\rhether the
partner who went to Cochin went in his capacity as
partner of the appellant: firm or as a director of one of
the managed companies:
the appellant firm had
rented a flat at Cochin on Rs. 20 per month and
rnaint::-iined some
employees at
Cochin for securing
freight: and the local office of the appellam firm at
Cochin rented at Rs.' I 0 per month maintained only
one. book containing cash,
journal and ledger.
The
Tribunal concluded- its supplementary statement thus:
"As for the
staff maintained at Cochin, . it was
alleged that
K. P. Joshi and
subsequently
G. H.
Narechania were p;iid Rs. 18,000 each ye;ir.
The
so-called
payment was disallowed
by the
Appellate
Tribunal.
It observed that debit entries in regard to
th<; salaries paid by the assessee firm were collusive
and fictitious.
As for the presence of the partners of
the,assessee firm at Cochin, it appears from the Appellate
Assist;int
Commissioner's
order tlut
it
was
adrni-ttr\1 before him tlut none of the partners of the
firm ever attended to the comp;iny's business at
Cochin or Alleppey.
...... '.' ................ ;, ........................................... .
"There i:s no clear evidence on the record as to wh:it
the assessee firm did as the
managing agents of the
three managed companies;
in other words.
how the
assessee firm "·as
carrying on the
managing agency
business.
The partners of the assessee firm (not necessarily all) were on
the Bo:ircl of Directors of the
managed companies.
They held
a large number of
shares in the 'managed companies.
The Mala bar Steamship Co. I.Id.
h~d an. office of it own
"to secure
freight"..
The Cochin office of the assessee firm, as
far as one
could make out,
did practically nothing,
except receive l 0% of .the gross freight at Cochin and
retain the net income therefrom".
1960
Shnmji Vallabhrlas
& Co.
v.
Commissioner of
Income-Tax/
Excess Profits T nx,
Bombtl)'
S. K. Das}.
1960
Sfwmji Vaflabhdns
& Co.
v.
Commissioner o.f
Income-lax/
Rxre.u Profits Tax,
Bomba)'
S. IL. Das J.
564
SUPREME COURT REPORTS
[19601
No\\', the question is-on the aforesaid findings of
fact reached by the Tribunal-where
did the commission payable to the managing agent accrue?
It is
"·ell to remember that the problem in this case is not
so much when the
commission
accrued as where it
accruecl,
thou.~h the question as to \\'here and when
may be interlinked.
\Ve think that normally, the
r<1n11n1ss1nn
payable to the
rnanaging ag-ents
oE a
company accrues at the place where the services are
performed b\· the managing agents.
It was so
held
by this Cqurt in K. R. M. T. T. Thi11gnrnja Chrll)' and
Comj>nn)• v. Commissioner of
Income-tax,
Madras,
No. 2('). The assessee in that case, Thiagaraja Chettiar,
claimed that a portion of the commission credited to it
in the company's accounts accrued to it in the Indian
States "·here the company had opened
branches for
selling nrn and as the commission was not remitted
to British India. it \\'as not assessable
to tax.
This
Court obser\wl:
"The short answer
to this argument
is that the
business of the company
was carried on in British
India, that the commission earned bv the firm on 'he
profits made h,- the company in the States arose out
of one indivisible
agreement to charge
the reduced
commission of Ci per cent. on the profits of the companv
and t.ha.t the managing agents had been rloing the
business of the agency in British India and not in the
States.
It. is not sugg·estcd that the managing agents
performed anv fnnct.ions in the States."
The same question of the place of accrual arose in
a somewhat. different context in Commissioner of lncorne-tax. Bomlrn)' Presidr:nC)'
and Aden \'. Chunilnl
B. 1Wehta (') where a person resident in British India
and carrying on business there controlled transactions
abroad, and the question was if he was liable to pay
tax upon profits deriYcd by him from contracts made
for the nurch;ise and sale of commodities in
various
markets-' Liverpool, London, New York, etc.
The
assessee disputed his liability in respect of such profits
on the ground that they were not profits "accruing or
arising in British India".
It was held that the .mere
fact. that the profits made depended on the exercise m
ti) [1953] 24 l.T.R 535.
(2) fl93B] 6 J.T.R. 521.
•
•
•
~- ..
3 S.C.R.
SUPREME COURT REPORTS
565
British India of knowledge, skill and judgment on the
1960
part of the assessee did not mean that the profits arose Sho01ji Vallabhdas
or accrued in British India, and there was no necessity
& Co.
arising out of the general conception of a business as
Commi~ioner of
an organisation that the 1xofits of the btlsjness must
Income-Tax
.
Excess Profits tax/
4nse only at one place, namely, the place of central
Bombay
control of the business.
Delivering the judgment of
the Privy Council in that case, Sir George Rankin
observed:
"I'he words "accruing or arising the British India"
may be taken, provisionally and in the first place, as
an ordinary English phrase ·which derives no special
meaning from the Act.
The alternative "accruing or
arising in"
and the antithesis ·between these words
and the words "received in" or "brought into" afford
no safe inference of any special meaning.
"Profit. .....
accruing or arising in British India" are words which
in their ordinary meaning seem to reqt1ire a place to
be assigned as that at which
the result of
trading
operation comes, whether gradually or suddenly, into
existence."
...................................................... .
..........................................................................
"
"Their Lordships are not laying· down any rule of
general application to
all classes of
foreign transactions, or even ·with respect to the sale of goods. To
do so would be nearly impossible and wholly unwise.
They are not saying that the place of formation of the
contract prevails
against everything
else.
In some
circumstances it may be so,
but other matters-acts
clone under the contract, for example-cannot be ruled
out a priori.
In the case before the Board the contracts were neither framed nor carried out in British
India;
the High Court's conclusion that the profits
accrued or arose outside British India is well-founded."
A similar
view
was
expressed
in
two e·arlier
decisions: (1) In Re:
The Aurangabad Mills Ltd. (1)
where a reference was made to Commissioner of Taxation v. Kirk, (1900) Appeal Cases, page 588 and it was
pointed out that the circumstance that the affairs of
the company were directed from Bombay was not the
detetmining test; but the test was where the processes
(1) [1921] I.L.R. 45 Born. 12$6,
10-6 SCI/ND/SZ
S. K. Das].
1960
Shon~ji Vallnb}ufas
& Co.
v.
Commissionl!r of
lnr.:ome-taxf
Excess Pro.fits Tax,
Bo,nba)'
S. K. Das J.
566
SUPREME COURT REPORTS
[1960)
which yielded tl1e
income were carried oul and 1.k1t
was outside British India; (2) The Co111111issioner
of
fncome-lax,
Bom/)(1)' Presidr;ncy v. l\1es.1rs. S11r11/1chand
Hulrnrnchand of Born/)ln', a firm (') where the assessees
acted as the secretaries, treasurers and agents of a mill
company registered at Indore, outside British India,
and under· the terms of' agreement, the assessees were
entitled to charge and receive as selling ag·ents commission on the gross sale proceeds of all doth produced
by the mill and the company opened a shop in Bombay
for the sale of cloth produced by the mill which was
managed by
the assessees.
The sale proceeds
"·ere
sent to Indore and the assessees were paid the commission at Indore.
The· question arose whether the commission was liable to be assessed to income-tax in
Bombay, and it was held that the income accrued in
British India. Jn Comrn.issiona of T-nco111e-l11x. Bomlwy
v. Alm1crl/Jhni U11111r/1/111i and Co., JJ0111bny(2) this Court
dccilt with a case where a firm resident in British Inclia
carried on the business of manufacturing ;rncl selling
groundnut oil; it owned some oil mills within British
India and a mill in Raichur in the l-1\'Clcrabad Stcite
where oil was manufactured.
One of th~ questions for
decision was
whether
the profits of that part of the
business, viz., the manufacture
of oil at the mill in
Rciichur accrued or arose in Raiclrnr within the meaning of the thircl proviso to s. ') of the Excess Profits
Tax Act, l !l40.
A majority of .Judges held that the
profits arose in Rciichur, and in a composite business,
the profits need not arise at one place only but may
arise at more than one place aml an apportionment
may b~ necessary.
Th is "·as not, however, a case of
ma nag1 ng agency.
"'c now come to the decision in Salt and fndwtries
Agniri~s f,f:d., Bo111/Jny v. Co111111issioncr of Tncome-tax,
Bomba)> City (') a decision of the same learned Chief
Justice, in respect of which learned
counsel for the
appellant has made some very serious comments.
The
facts of that case were these: the assessees, a company
incorporated in Bombay were the managing agents of
another company incorporated in Bombay and having
its salt works at Aden
and at Kanclla in die Kutch
(1) [1930] I.LR. 55 Rom. 231.
(2) [1950] S.C.R. 335.
(3) [1950] 18 I.T.R. ;,s.
·-
-
3 S.C.R.
SUPREME COURT REPORTS
567
State.
The assessee's registered office was in Bombay,
where the board of directors met,· the books of account
were· maintained and various types of work connected
with the company were clone.
Under the managing
agency agreement the assessees were entitled to a commission at the rate of 12~- per cent. per annum on the
annual net profits of the company and in any event a
minimum of Rs. :W,000 per annum. The agreement
also provided that such portion of the commission as
was attributable to the net
profits of the company
arising or accruing in the Indian State was to be paid
to the managing :1gents in such State and that with
regard to the minimum commission half of it was to
be paid in the State.
In pursuance of the assessees'
articles of association the board of directors passed a
·resolution delegating a particular director to guide the
company's operation in the State of Kutch and during
the year of account that director supervised the salt
works at Kanclla.
The qvestion was whether the sum
of Rs. 88,065 representing assessee·s commission attributable to the salt works at .Kanclla accrued or arose
at Kanclla
or in
British India.
First,
the learned
Chief Justice referred to the test to be applied in order
to determine where the profits of the assessee company
accrned or arose, and he said that the test was to find
out where the actual business
of the company was
clone which yielded the profits sought to be taxed.
In
that connexion he said:
"The work of the maHaging agents must be looked
upon as a unit and not as divided up into so many
different categories,
to each one of
which a certain
portion of the
commissi9n earned by the managing
.agents can be attributed or allocated."
He then
went on to consider when
the right to
managing agency commission arose in that case and
came to the conclusion,
which was decisive
in his
op1111on,
that it arose when all the
accounts of the
working of the company were submitted to the head
office in
Bombay and the
profits were determined:
therefore, the sum of Rs. 88.065 accrued or arose to
the :1sscssccs in Bombay and not in the Indian State
both for purposes of income-tax and excess profits tax.
1960
S!ll!orji Vallahhdas
& Co.
v.
Commissioner of
Income-tax/
Excess Profits Tax,
·
Bombay
·
S.K. Das].
563
SUPREME COURT REPORTS
[1960]
1960
Now,
learned counsel for
the appellant has
no
Shoarji Vallabhd" quarrel with the decision in so far as
it laid down
& :_a.
that (a) the Lest is
to find out where the
business is
Commissi011er of actually done,
i.e., wl1ere tJ1e services are performed,
Incam•-tax/
d (b) h
· 1
·
· ·
Excess Profits Tax, an
t e rig 1t to managing· agency co111n11ss1on arose
Bambay
in that case when all the accounts of the working of
s. K. DasJ.
the company were
submitted to
the head office in
Bombay and the profits
were determined.
Learned
counsel
has contended
that in the case
under our
consideration the
services were performed
partly in
British India and partly .in. Cochin and
the right to
111anag1ng agency
con11111ss1011 arose as
soon as the
freight was paid
at least in
respect of two of the
managed
companies.
He has submitted,
however,
that the learned
Chief .Justice
was m error
if he
intended to lay down a rule of universal application
that the work of the managing
agents must always
be looked upon as a unit and can never to be divided
into categ'Ories.
It. is· contended that the services of a
managing agent can be performed at more than one
place, and legally it is possible to apportion the commission and attribute a pan of it: to services rendered
outside the taxable territories.
We consider it unnecessary
in the present case to
decide the
question of performance of
services and
resultant apportionment,
if any,
on a theoretical or
hypothetical basis, because the case can be disposed of
on the short ground that on the findings of the Tribunal,
the remuneration
of Lhe
managing
agents
accrued at Bombay.
vVe had referred earlier to the
findings reached by the Tribunal.
These findings show
that except for an attempt at make-believe, no services
were really performed by the appellant at Cochin.
No
doubt, some freight was secured and paid for at Cochin.
But the managed company also had an office at Cochin
to secure freig·ht.
It has been argued that under the
terms of the managing agency agTeements, the managing agents employed the staff, etc., and for two of the
companies which carried on the cargo business, securing freight was the principal part of the managing
agency business. The Hi~h Court,
however. rightly
pointed out:
' .
. -
..
'
3 S.G.R.
SUPREME COURT REPORTS
569
"In our opm10n,
it is not possible
to read the
managing agency
agreement in that light.
All that
clause 2 of the agreement
does is to lay
clown the
standard by which the commission is to be computed
and determined, and it lays down two different standards, one with regard to the shipping business and the
other with regard to the other businesses, but as far
as the business of the managing agency is concerned
their responsibilities and their duties are integrated
duties and responsibilities which
are set out in the
different clauses of the agreement.
It is impossible to
contend that they had not to supervise, control and
manage the shipping business and, as we have already
said the business
of a shipping company
is vastly
more detailed and responsible than the mere task of
finding people to go by ship or send their goods by
ship and for that purpose paying freight. . Freight is
merely the resultant profit which accrues to a shipping
company.
In order that that profit should result the
company has got to have ships, it has got to have seaworthy ships, it has got to have sailors and officers, it
has g·ot to look to the repairs of the ships, the renovation o.f the ships and the replacements of the ships.
All this is part of the shipping company's business and
all this business had to be attended to by the managing agents and the question is, where did they attend
to this business.
The finding on this question is clear.
The finding, in effect, is that barring booking freight,
and collecting freight at Cochin,
all other important
and responsible work of managing the managed companies was done from the head office at Bombay and not
from Cohin."
On the findings reached, the position in law is quite
clea1'.
The decisions to which we have referred
clearly establish that normally,
the commission payable to the managing agents accrues at the place where
the business is actuallv clone, that is, where the
services of the
managi~g agents
are performed.
In
th is case the appellant
practically performed all the
services at Bombay,
and therefore the
commission
which it earned though computerl on the percentage
of freight and /or passage money in respect of two .of
the managed companies,
accrued or arose in British
1960
Shoorji Vallabhdas
& Ca.
v.
Commissiontr of
ln.ome-tax/
Excess Profits Tax,
Bombay
S. K. Das].
1960
Sftaorji Vatlabhdas
& Co.
v.
Commissioner of
lucome-laxf
Excess Profits T1,x,
Bombay
S . .K. Das J.
1960
A.fHif 20
570
SUPREME COURT REPORTS
[1960]
India.
As
to t.hc
t.hir<l
mauaged company whose
business was stevedoring and t.rading and t.hc remuneration was payable at
2:"i
per cent. of the net
profits, there can be no doubt that the remuneration
accrued at Bombay.
Therefore, the High Court of
Bombay correctly answerc<l the question against. the
appellant.
The appeal accordingly fails and is dismissed with
cusr.s.
A j1j1eal dismissed.
R/\JK!;f\JARI KAUSHALYA DE\11
v.
BAWA PRJJ":'.JA SINGH AND ANOTHER.
(P. B. GAJEXDRAGADKAR, K. N. \VAl'\CHOO and
K. c. DAS GUPTA, JJ.)
Mortgage-Whether a "pecuniary liability"-The
Displaced
Persons (Debts Adjustment) Act (LX X of 1951), ss. 2(6), sub-els.
(a) (b) (c) 13, 15, 16(5), 17, 21.
The appellant
executed
two
usufructuary
mortgages in
favour of the respondents in 1946 with respect to two properties
'
. -
situated in Ferozepur city and herself took the properties on lease
.....
on the same date.
1~he respondents filed an application- under
s. 13 of the Displaced Persons (Debts Adjustment) Act, LXX of
1951, for recovery of the principal sum due and also the arrears
of rent.
The appellant contested the application on the ground,
1'"7·~
inter alia, that the liability was not a debt under the Act as it
"'
was not a pecuniary liability and that mortgages in relation to
properties situated now in India were not covered by it.
The
Tribunal allowed the application and passed a preliminary decree
for sale.
The appellant's appeal to the High Court and another
under the Letters Patent were both
dismissed.
On appeal by
special leave:
Held, that a mortgage debt would create a pecuniary liability upon the 1nortgagor and would be covered bv, the definition
of the word "debt" in s. 2(6) of the Act.
There is nothing in any provision of the Act which would
cut down the plain meaning of the words "pecuniary liability"
as used in s. 2(6) read with sub-cl. (c) thereof or restrict those
wide words to liability other than that secured by a mortgage.
Under sub-cl. (c) o[ s. 2(6) a displaced
person to whom a
mortgage debt is due f rorn any or her person, whether a displaced
,.
person or not, ordinarily residing in the territories to which the
Act extends can take the benefit of this Act.