Civil Appeals Nos 14558 and 32357
Appeals by special leave from the judgment and order dated September 14 1955 of the Bombay High Court in IT References Nos 8 and 21 of 1955 respectively
R Ganapathi Iyer and D Gupta for the appellant in CA No 145 of 1958 and respondent in C A No 323 of 1957
N A Palkhivala section N Andley J B Dadachanji and Rameshwar Nath for the respondent in C A No 145 of 1958 and appellant in C A No 323 of 1957
 1960
February 19
The Judgment of the Court was delivered by KAPUR J
This judgment will dispose of two appeals C A No 14558 and C A 32357
They arise out of the same transaction ie Managing Agency Agreement and the result of C A No 32357 is dependent upon the judgment in C A 145158 and we propose to deal with the latter appeal which was argued before us and the former for reasons to be stated later was not pressed
The appellant in C A 14558 is the Commissioner of Income tax Bombay and the respondent is the assessee a registered firm which on March 8 1941 was appointed the Managing Agents of Shri Ambica Mills Limited hereinafter termed the Managed Company the appellant in C A 32357
The duration of the Managing Agency period was 20 years
By clause 2 of the Managing Agency Agreement it was provided  2a The Company shall pay each year to the said Firm either the commission of 5 five per centon the total sale proceeds of yarn and of all cloth manufactured from cotton silk jute wool waste and other fibres and sold by the company or a commission of three pies per pound avoirdupois on the sale whichever the said Firm choose to take and also a commission of 10 ten per cent
on the proceeds of sale of all other materials sold by the Company and 10 ten per cent
on the bills of any ginning and pressing factories and on any other work done by the Company
53 bIf in any year the net profits of the Company shall not be sufficient to enable the Directors if they think fit to recommend a dividend of eight per cent
per annum on the capital paid up on the ordinary shares for the time being the same Firm shall be bound to give up from the total amount of commission payable under clause 2a hereof such portion thereof as may be necessary to make up the deficit
PROVIDED THAT in no event the amount so given up by the said Firm shall exceed one third of such total amount of commission And by Clause 5 it was provided  5 The remuneration payable to the said Firm Under Clause 2a shall be paid to the said Firm forthwith after the 31st day of December or such other date as the Directors may fix for the closing of the accounts of the Company in each year and after such accounts are passed by the Company in General Meeting 
On December 9 1950 the Board of Directors of the Managed Company passed a resolution to the effect that the Directors had for some time past been discussing with the Managing Agents the advisability of modifying the terms of the Managing Agency Agreement as to the commission payable under it and that the Managing Agents had agreed to charge 3 per cent
on sales instead of 5 per cent
for the year ending December 31 1950
A resolution was passed at the Annual General Meeting of the Managed Company on April 221951 which was to the same effect
The resolution of the Board of Directors was ratified at an Extraordinary General Meeting of the shareholders of the Managed Company on October 7 1951 and the same day a formal agreement embodying the terms of the resolution was executed between the Managing Agents and the Managed Company
For the accounting years 1950 and 1951 ie assessment years 1951 52 and 1952 53 the Managing Agents were taxed by the Income tax Authorities on the basis that in those two years they had voluntarily relinquished a sum of Rs 169981 and Rs 210 53O for the respective assessment years
These sums were added to the income of the Managing Agents for the purpose of income tax
54 An appeal was then taken to the Income tax Appellate Tribunal and it was held by the Tribunal that the agreement between the Managing Agents and the Managed Company to receive remuneration at 3 on the total sales was a valid one and took effect as from January 1 1950
The second question whether the commission accrued on the proceeds of every single sale or it accrued only when the assessee firm exercised its option to charge its commission on the total sale proceeds or on the weight of the yarn sold and whether the Managing Agents were to get the amount of commission after the whole profit was determined at the end of the year was decided in favour of the Managing Agents
A Reference was made to the High Court at the instance of the Commissioner of Income tax and the questions above mentioned were answered in favour of the Managing Agents
This appeal by the appellant has been brought against the judgment of the High Court by special leave
In the connected appeal ie C A 32357 by the Managed Company the facts are the same except that the Appellate Tribunal allowed the Managed Company the sum on which the Managing Agents wereto be taxed as allowable deduction
When the Commissioner got the case stated to the High Court the Managing Company also had a case stated
But as the High Court upheld the contention of the Managing Agents the Managed Company did not press its application which was therefore dismissed
The appeal of the Managed Company is brought against that order
In the appeal by the Commissioner of Income tax ie C A 14558 it was argued that according to the terms of the Agency Agreement the Managing Agents were to get the commission on the sales and as the accounts were kept on a mercantile basis the amount of commission accrued as and when the sales took place and paragraph 5 of agreement was only a machinery for quantifying the amount
It was also argued that the Managing Agents by entering into an agreement with the Mills had voluntarily relinquished a portion of the amount of commission which had accrued to them and therefore the whole of the income from commission which had already accrued was liable to 55 income tax and reference was made to the cases reported as Commissioner of lncome tax Madras vs K R M T T Thiagaraja Chetty and Co 1 E D Sassoon  Company Ltd vs The Commissioner of Income tax Bombay City 2 and to an English case Commissioners of Inland Revenue vs Gardner Mountain  D  Ambrumnil Ltd 3
But these cases have no application to the facts of the present case
In the Commissioner of Income tax Madras vs K R M T T Thiagaraja Chetty  Co 1 the assesses firm was under the terms of the Managing Agency Agreement entitled to a certain percentage of profits and in the books of the Company a certain sum was shown as commission due to the assessee firm and that sum was also adopted as an item of business expenditure and credited to the Managing Agents  commission account but subsequently it was carried to suspense account by a resolution of the Company passed at the request of the assessee firm in order that the debt due by the Firm might be written off
The accounts were kept on mercantile basis and it was held that on that basis the commission accrued to the assessee when the commission was credited to the assessee s account and subsequent dealing with it would not affect the liability of the assessee to income tax
It was also held that the quantification of the commission could not affect the question as it was not a condition precedent to the accrual of the commission
At page 267 Ghulam Hassan J observed  Lastly it was urged that the commission could not be said to have accrued as the profit of the business could be computed only after the 31st March and therefore the commission could not be subject to tax when it is no more than a mere right to receive
This argument involves the fallacy that profits do not accrue unless and until they are actually computed
The computation of the profits whenever it may take place cannot possibly be allowed to suspend their accrual
In the case of income where there is a condition that the commission will not be payable until the expiry of a definite period or the making up of the account it might be 1  at 267
2   344
3  96
56 said with some justification though we do not decide it that the income has not accrued but there is no such condition in the present case 
This passage does not help the appellant s case
The question there decided was that the accrual of the commission was not dependent upon the computation of the profits although the question whether it would make any difference where the commission was so payable or was payable after the expiry of a definite period for the making of the account was left undecided 
In the case before us the agreement is of a different nature and the above observations are not applicable to the facts of the present case
The next case is E D Sasoon  Co Ltd vs The Commissioner of Income tax Bombay City 1
But it is difficult to see how it helps the case of the appellant
If anything it goes against his contention
In that case the assessee Company was the Managing Agent of several Companies and was entitled to receive remuneration calculated on each year s profits
Before the end of the year it assigned its rights to another person and received from him a proportionate share of the commission for the portion of the year during which it worked as Managing Agent
On the construction of the Managing Agency Contract it was held that unless and until the Managing Agent had carried out one year s completed service which was a condition precedent to its being entitled to receive any remuneration or commission it was not entitled to receive any commission
The facts in that case were different and the question for decision was whether the contract of service was such that the commission was only payable if the service was for a completed year or the assessee Company was entitled to receive even for a portion of the year for which it had acted as a Managing Agent
It was held that it was the former
As was observed by Lord Wright in Commissioners of Inland Revenue V Gardner Mountain  D Ambrumenil Ltd 2  It is on the provisions of the contract that it must be decided as a question of construction and therefore of law when the commission was earned The contract in the present case in para 1   344
2  96
57 graph 2 shows that 1 the company was to pay each year 2 that the Managing Agents were to be paid 5 per cent
commission on the proceeds of the total sales of yarn and of all cloth sold by the Company or three pies per pound  avoirdupois on the sale whichever the Managing Agents chose thus there was an  option to be exercised at the end of the year 3 they were also to be paid at 10 per cent
on the proceeds of sales of all other materials and 4 the Mills were to pay to the Managing Agents each year after December 31 or such other dale which the Directors of the Company may choose for the closing of the accounts
There was a further clause that if the net profits of the Managed Company that is the Mills were not sufficient to enable the Directors to recommend a dividend of 8 per cent
per annum on the paid up capital then the Managing Agents were bound to forego a portion of their commission upto one third
All these provisions as to payment have to be read together as an indivisible and an integral whole
On a proper construction of this contract therefore it is obvious that the Managing Agents were to be paid at the end of the year
They had the option of receiving a percentage on total sales or three pies per pound and this was exercisable at the end of the year
There was also a liability to pay back a portion of the commission in certain contingencies which also could be determined only when the accounts were made up for the year
It is thus clear that there was no accrual of any commission till the end of the year
On this construction of the contract it cannot be held that the commission had accrued as and when the sales took place and that as a result of their agreeing to the modification of the agreement the Managing Agents had voluntarily relinquished a portion of their commission
On the other hand under the original agreement the Managing Agents were entitled to receive commission only at the end of the year and before then the agreement was varied modifying its terms as from the beginning of the accounting year
We are of the opinion therefore that the High Court correctly found against the appellant and we therefore dismiss C A No 145 of 1958 with costs
In 8 58 view of this Mr Palkiwala for the Managed Company did not press C A No 323 of 1957 which is therefore dismissed but the parties will bear their own costs in that case because the result of that appeal is really dependent upon the result in C A No 145 of 1958


Summary:
The appellant was convicted of selling adulterated butter under sections 406 and 407 read with section 488 of the Calcutta Municipal Act as extended to the Municipality of Howrah on a complaint filed by the Sanitary Inspector on January 2 954 which was signed in token of sanction by the Health Officer of the said municipality
The appellant contended that the trial was vitiated for want of a valid sanction because at the relevant time the Health Officer of the municipality did not have any power to sanction the prosecution
Under the Act the power to institute 740 a complaint vested in the Commissioners but they could delegate the power to the Chairman and the Chairman could also by a general or special order in writing re delegate the power to the Vice Chairman or to any municipal officer
The question of the delegation of their power by the Commissioners was not specifically raised but it was urged that the Chairman had by certain subsequent orders revoked the delegation in favour of the Health Officer
The first order passed by the Chairman on February 6 1948 delegated to the Vice Chairman all his powers duties and functions in respect of seven departments including the Health Department
The second order was passed on December 201949 by which the Chairman delegated his powers and functions to the Health Officer to order prosecution and to sign prosecution sheets in respect of cases concerning the Health and Conservancy Departments
The third order was made on April 7 1951 on the eve of the new election and stated Till the election of Executives by the New Board I delegate all my powers and functions except those that are delegated to the Vice Chairman to the respective officers of departments
After the election the new Chairman passed an order on July 4 1951 delegating all his powers duties and functions in respect of six departments including the Health Department to the Vice Chairman
The last order was passed on December 12 1952 which said I hereby revoke my order dated the 4th July 1951 so far as it relates to the Health Department which shall henceforth be direct under my charge until further orders
This will take effect from 15th December 1952
The appellant urged that the third order modified the second and placed a time limit on it and that the delegation lapsed on the expiry of the time
The respondent contended that the third order did not affect the second and that in any case the Health Officer could file the complaint as a private citizen
Held per section K Das and A K Sarkar jj that the Health Officer was not empowered as the duly delegated authority to institute criminal proceedings against the appellant on the date on which he made the complaint
The third order made by the Chairman on April 7 1951 modified the second order by making the delegation thereunder in favour of the Health Officer effective only till the election of the new Executive
The object of the third order was to leave the new Chairman free to pass his own orders of delegation and not to fetter his discretion in any way
The orders passed by the new Chairman did not delegate the power to the Health Officer
Held further that a complaint under the Calcutta Municipal Act 1923 as applied to Municipality of Howrah can only be filed by the authorities mentioned therein and not by an ordinary citizen
Section 537 of the Act provides that the Commissioners may institute defend or withdraw from legal proceedings under the Act under section 12 the Commissioners can delegate their functions to the Chairman and the Chairman can in his turn delegate the same to the Vice Chairman or to any municipal 741 officer
The machinery provided in the Act must be followed in enforcing its provisions and it is against the tenor and scheme of the Act to hold that section 537 is merely enabling in nature
Nazir Ahmed vs King Emperor 1936 LR 63 IA 372
referred to
Sisir Kumar Mitter vs Corporation of Calcutta
631 explained
Keshabdeo Kedia vs P Banerjee Sanitary Inspector Howrah Municipality
and State vs Manilal Jethalal AIR referred to
Cole vs Coulten2 Ellis  Ellis 695 Buckler vs Wilson  The Queen vs Stewart 1896 1 QBD 300 and Giebler vs Manning  held inapplicable
The Queen vs Cubitt  relied on
Per Hidayatullah 1
The sanction given by the Health Officer was valid as the delegation of authority to him by the order of December 20 1949 was not taken away by subsequent orders
The order of December 20 1949 which specially conferred the power to order prosecution to sign prosecution sheets was a special order and was unaffected by the general order of April 7 1951
The later order put a time limit only on delegations made under that order and not on orders made before