Non-compliance with the provisions of Section 12A disentitled the assessee from claiming the deduction under Section 10 of the Income-tax Act.

Chatterjee, J.

1. THE question referred to this Court by the appellate tribunal is as follows :

"Whether in the facts and circumstances of the case the tribunal was right in holding that the non-compliance by the assessee with the provision of Section 12A disentitled him from claiming the deduction of Rs. 32,685 in question and is assessable under the provision of Section 10 of the same Act."

2. THE applicant is the managing agent of Radha Krishna Sugar Mills Ltd. Its income is mainly from the managing agency commission which it received from the mill. THE Radha Krishna Sugar Mills Ltd., was loated by a number of persons: Radha Krishna Jajharia who was karta of a joint Hindu family, Gobardhandas the Shroff and Joy Doyal Kasaria. It is stated that there was an agreement between these parties to share the managing agency commission payable by the Radha Krishna Sugar Mills Ltd. Later on, both Joy Doyal and Gobardhandas assigned their respective shares of the managing agency commission to Bhartia and Co. and Rai Bahadur Mangturam Tapuria. During the year of account, payments were made to the parties in terms of the agreement and they amounted to Rs. 32,685 and the details are set out in the statement of case.

The payments were no doubt made by the managing agents out of the commission which the company received from the mills and they were proved by vouchers. Bat no declaration showing the proportion in which the commission was shared under Section 12A, Income-tax Act, was filed before the Income-tax Officer. It is further stated that the parties concerned were approached by the applicant to make the required declaration, but they refused to do so on various grounds. What those grounds are it is not stated. However, no declaration was filed before the taxing authorities and the Income-tax Officer refused to apportion the payments amongst the parties for separate assessments.

3. ON appeal the Assistant Commissioner upheld the decision of the Income-tax Officer and the tribunal has also taken the same view. However, the Commissioner of Income-tax did not oppose a reference to this Court and that is why the question aforesaid was referred to us for our opinion.

4. SECTION 12A, Income-tax Act, was introduced in the year 1939 after the judgment of the Judicial Committee in Tata Hydro Electric Agencies, Ltd., Bombay v. Commissioner of Income tax, Bombay Presidency and Aden, 64 I. A. 215 : (1937) 5 I. T. R. 202 : (A. I. R. (24) 1937 P. C. 139). That SECTION 12A is in the following terms :

"Where a managing agent of a company in liable under an agreement made for adequate consideration to share managing agency commission with a third party of parties, the said agent and the said party or parties shall file a declaration showing the proportion in which such commission is shared between them, and on proof to the satisfaction of the Income-tax Officer of the facts contained in such declaration such agent and each such party shall be chargeable only on the share to which such agent or part is entitled under the agreement."

Section 12A was introduced partly to counteract the decision of the Judicial Committee in Tata Hydro Electric case, 64 I. A. 215 : (A. I. R. (24) 1937 P. C. 139), and also to remove doubts with reference to the application of Section 10 (2) (xv), Income-tax Act. It is often difficult to determine whether a particular payment represented by a share of profits has been made in order to earn such profits or whether it was really a distribution of the profits. (Sundaram's Law of Income-tax' 6th Edn. p. 723).

5. THE wording of Section 12A shows that it is only applicable to the managing agents of companies. THEre are certain conditions clearly prescribed by that Section (1) there must be an agreement to share the commission with a third party or parties; (2) that agreement must be for adequate consideration; (3) the managing agent must file a declaration showing the details of such profit-sharing; and (4) the Income tax Offi