The time of accrual of managing agency commission is determined by the terms of the managing agency agreement.

Judgment

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, 1922. 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 1946-1947, and the year ending with Diwali, 1945 (October 18, 1944 to November 4, 1945) was the accounting year. Sometime in 1944 some 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 Company at an agreed price. It was further decided that a sum of Rs. 5,00,000 be paid by the assessee Company to the Nemani group as the price of the managing agency rights. This arrangement was approved by the share-holders of the Mills Company by a resolution dated January 4, 1945, and came into effect immediately. The agreement further was that the assessee Company would come in as managing agents of the Mills Company in place of the Nemani group and would be entitled to the emoluments of the managing agents as from April 1, 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 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. 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 managing 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 1/2 % 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 Company. The Department, however, contended that the whole of the managing agency commission accrued to the assessee. Thereupon, at the instance of the Department, the Tribunal referred the following question of law to the High Court for decision:

"Whether on the facts and circumstances of the case the managing agency commission @ 3 1/2 % on sales made by the New Swadeshi Mills of Ahmedabad Ltd. between April 1, 1944 and December 31, 1944, accrued to Shivnarayan Surajmal Nemani, or to the assessee?"

2. The High Court held that the matter was concluded by the decision of this Court in E. D. Sassoon and Co. Ltd. v. Commissioner of Income-tax, Bombay City, (1955) 1 SCR 313. 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, (1955) 1 SCR 313 (supra), it said:

"We woul