Case: Shoorji Vallabhdas &amp; Co., Bombay Vs. The Commissioner Of Income-Tax/Excessprofits Tax, Bombay

commission attributable to the salt works at Kandla accrued or arose at Kandla 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 accrued or arose, and he said that the test was to find out where the actual business of the company was done which yielded the profits sought to be taxed. In that connection he said :"The work of the managing 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 commission 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 opinion, that it arose when all the accounts of the working of thew 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 assessees in Bombay and not in the Indian State both for purposes of income-tax and excess profits tax.12. Now, learned Counsel for the appellant has no quarrel with the decision in so far as it laid down that (a) the test is to find out where the business is actually done, i.e., where the services are performed, and (b) the right to managing agency commission arose in that case when all the accounts of the working of 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 managing agency commission 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 in 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 be divided into categories. 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 part of it to services rendered outside the taxable territories.13. 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 the managing agents accrued at Bombay. We 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 freight. It has been argued that under the terms of the managing agency agreements, 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 High Court, however, rightly pointed out :"In our opinion, it is not possible to read the managing agency agreement in that light. All that clause 2 of the agreement does is to lay down 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 profit should result the company has got to have ships, it has got to have sea-worthy ships, it has got to have sailors and officers, it has got to look to the repairs of the ships, the renovation of the ships and the replacements of the ships. All this is part of the shipping companys 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 Cochin."14. On the findings reached, the position in law is quite clear.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 actually done, that is, where the services of the managing agents are performed. In this case the appellant practically performed all the services at Bombay, and therefore the commission which it earned though computed on the percentage of freight and/or passage money in respect of two of the managed companies, accrued or arose in British India. As to the third managed company whose business was stevedoring and trading and the remuneration was payable at 25 per cent of the net profits, there can be no doubt that the remuneration accrued at Bombay.Therefore, the High Court of Bombay correctly answered the question against the appellant.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]While we agree with learned Counsel for the appellant that the real question in this case is whether any part of the managing agency commission accrued outside British India, we do not agree with him that the High Court was wrong in reformulating the question. The Tribunal formulated the question as though the computation of the appellants remuneration on the basis of freight determined the place of accrual : in this the Tribunal was in error, and the High Court rightly pointed out that the test to be applied was not how the remuneration was to be computed or quantified, but where the services were performed by the appellant, which yielded the profits sought to be taxed. The High Court rightly reformulated the question on that basis and asked the Tribunal to submit a supplemental statement of the case on the materials available and placed before it by the appellant bearing on the question as reformulated by the High Court.Now, learned Counsel for the appellant has no quarrel with the decision in so far as it laid down that (a) the test is to find out where the business is actually done, i.e., where the services are performed, and (b) the right to managing agency commission arose in that case when all the accounts of the working of 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 managing agency commission 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 in 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 be divided into categories. 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 part of it to services rendered outside the taxable territories.13. 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 the managing agents accrued at Bombay. We 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 freight. It has been argued that under the terms of the managing agency agreements, 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.On the findings reached, the position in law is quite clear.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 actually done, that is, where the services of the managing agents are performed. In this case the appellant practically performed all the services at Bombay, and therefore the commission which it earned though computed on the percentage of freight and/or passage money in respect of two of the managed companies, accrued or arose in British India. As to the third managed company whose business was stevedoring and trading and the remuneration was payable at 25 per cent of the net profits, there can be no doubt that the remuneration accrued at Bombay.Therefore, the High Court of Bombay correctly answered the question against the appellant.