The definition of the expression net profits given in Article 83 does not mean divisible or distributable profits of the company for commission is to be paid to the managing agents before deducting depreciation.

Harnam Singh, J.

1. In Civil Reference No. 7 of 1950 the question that has been referred to the Full Bench for decision reads:

"Whether in view of the managing agency agreement read with Article 83 of the Articles of Association as altered in pursuance of resolutions Nos. I and 3 of the resolutions passed at the Extra-ordinary General Meeting on 17-10-1943, and the provisions of Section 87C, Companies Act, the Tribunal was right in directing that excess profits tax fell to be deducted before arriving at the net profit upon which a fixed percentage was allowed as managing agents commission."

2. On 9-4-1936, the managing agency agreement, Annexure C was made between the "Western Hosiery and General Mills, Limited, Delhi, hereinafter referred to as the assessee company, and Messrs. Sohan Lal and Company, hereinafter referred to as the managing agents.

3. By Clause 2 of the agreement, Annexure C, the remuneration of the managing agents was fixed. That provision has been altered and it is common ground between the parties that for the assessment year 1946-47 managing agents are to be paid remuneration in accordance with the provisions of revised Article 83 of the Articles of Association of the assessee-company.

4. Article 83 of the Articles of Association of the assessee-company provides inter alia:-

"The remuneration of the managing agents shall be an office allowance of Rs. 100 per mensem plus 15 per cent, of the net profits of the company, after deducting interest on debentures and other loans but before taking anything to depreciation, reserves, or other special accounts as the Directors may from time to time sanction. * *"

That is the only portion of Article 83 which is relevant.

5 In connection with the income-tax assessment for the year 1946-47 and the excess profits tax assessment for the corresponding chargeable accounting period the assessee-company claimed that excess profits tax was not to be deducted before arriving at the net profits upon which commission was to be paid to the managing agents. The Income-tax Officer, however, found that excess profits tax was to be deducted before arriving at the net profits upon which commission was to be paid to the managing agents.

6. On appeal the appellate Assistant Commissioner upheld the decision given by the Income-tax Officer.

7. In proceedings under Section 33, Income-tax Act the Income-tax Appellate Tribunal basing itself on the decision given in - Walchand and Co., Ltd. v. Hindustan Construction Co., Ltd., AIR 1944 Bom 5 (A), held that excess profits tax was to be deducted before arriving at the net profits upon which commission was to be paid to the managing agents.

8. On the application of the assessee-company under Section 66 (1), Income-tax Act, 1922, the Tribunal has referred for decision to this Court the question of law cited above.

9. From a perusal of Article 83, Annexure A, it is plain that the definition of the expression net profits given in Article 83 does not mean divisible or distributable profits of the company for commission is to be paid to the managing agents before deducting depreciation. In my opinion, the. parties have defined the expression net profits on which commission is to be paid to the managing agents and we have to take the words of the agreement as they stand to find out the meaning of the expression net profits occurring in Article 83, Annexure A.

10. For the reasons given by me in - Civil Ref No. 18 of 1952 (B) I find that excess profits tax is not to be deducted before arriving at the net profits of the company upon which commission is to be paid to the managing agents as provided by Article 83 of the Articles of Association of the company. In - Civil Ref. No. 18 of 1952 (B) the construction of a document similarly worded as in this case was in question and counsel appearing for the parties did not address arguments in this case stating that the decision in - Civil Ref. No. 18 of 1952 (B) would govern this case.

11. In the questio