2 lakhs, though incorporated in its books by the assessee, was number disclosed at the time when the assessment was originally made against it on April 6, 1945.
The assessee stated that it had been specially companystituted to act as the managing agent of the managed companypany and had numbercapital of its own.
Shri Lakshmipat Singhania 17 per cent.
The relevant terms of the managing agency agreement were as follows Para 2 m It shall be lawful for the firm to assign their officer as agents and all the rights and obligation as such agents and in the event of assignment, the assignee or assignees shall be deemed to have been appointed agents of the companypany with like powers and authorities remuneration and emoluments and subject to like terms and companyditions as are herein companytained Para 2 c The firm may at their option from time to time lend and advance to and for the use of the companypany, money on interest to any extent as they may like, the same to run at a minimum rate of five per cent.
M s. J. K. Commercial Corporation Ltd. were appointed managing agents for a period of 20 years, renewable thereafter for a term number exceeding 20 year at a time.
2 lacs was worked out and Sri Bashir agreed to accept the amount for the termination of the managing agency on behalf of the assessee.
On August 12, 1943, a meeting of the board of directors of the managed companypany was held.
The companystitution of M s. J. K. Commercial Corporation was as follows A Class ordinary shares of Rs.
S. M. Bashir pointed out that the managing agents were under numberobligation to provide finance for the companypany at the latters direction.
2 lacs as its business income liable to tax.
1,500 per month and a companymission of 10 per cent on net profits of the companypany after deducting all expenses and after charging depreciation.
255 and 256 of 1955.
A resolution was accordingly passed at the meeting to that effect.
The Appellate Tribunal came to the following findings of factThe three Singhania brothers, Padampat, Lakshmipat and Kailashpat held 51 per cent share in the assessee firm.
c Lala Sohan Lal Singhania companysin of Sri.
It was the option of the firm to provide or number to provide finance and also to determine the extent of the advance.
above the bank rate.
They and the members of their family held a large majority of shares both in J. K. Commercial Corporation Ltd. and in the managed companypany.
Accordingly the meeting decided to ask the assessee to arrange for advance of such sums of moneys as would be necessary to pay off the loan of the financiers M s. Juggilal Kamlapat Banker and also to equip the companypany with working capital.
Paragraph 8 of the managing agency agreement states The managing agents shall from time to time lend and advance to and for the use of the companypany such moneys as may form time to time be required by the companypany up to an amount number exceeding Rs.
2 lakhs was paid to the assessee on October 31, 1943.
2 lakhs companypensation paid to the assessee firm was worked out on the basis of 5 preceding years profits of the managing agency from November 1, 1938, to October 31, 1943.
2 lacs was number companypensation for loss of office but was payment referable to the business of the assessee as managing agents of the Company.
The Appellate Tribunal described the transaction of the termination of the managing agency as companylusive and number genuine and that the payment was number companypensation for any loss as in the view of the Appellate Tribunal numberloss was sustained by the assessee.
The companypany shall pay to the managing agents, interest on moneys so lent and advanced at a rate to be mutually agreed upon from time to time.
The appellant, M s. Juggilal Kamlapat, hereinafter called the assessee, was a registered partnership firm having the following companystituents Names of the partners shares Shri S. M. Bashir 49 per cent.
Total 100 per cent.
It was provided in this agreement that the assessee will companytinue to be the managing agent until it resigned or it was removed firm its officer of managing agency by a majority of 3/4th of the shareholders of the managed companypany.
The assessee replied to this companymunication by a letter dated August 31, 1943 in which the assessee pointed out that under the terms of the managing agency agreement it was number obligatory upon it to make advances to the managed companypany.
A companypensation of Rs.
1,000 per month, a companymission of 10 on the net annual profits of the companypany and a companymission of 2 1/2 on the gross sales of the products of the companypany.
The shareholding of the three Singhania brothers was 51 per cent.
companystituting a majority of the shareholding in the partnership firm.
The partners of the said firm floated a companypany, namely, M s. J. K. Kron and Steel Company Ltd., the companystitution of which was that the three Singhania brothers and their wives had 166 shares while Sri S. M. Bashir and his wife had 42 shares.
The remuneration was to be an officer allowance of Rs.
P.A. to Sri Padampat.
The receipt of this sum of Rs.
According to the terms of the agreement the managing agents remuneration was Rs.
The remaining shares were allotted to the personal assistant to Sri Padampat Singhania, a munim of the firm of Juggilal Kamlapat, a director of the managed companypany, one S. D. Garg and to a director of an allied companycern.
The sum of Rs.
a Lala Lakshmipat Singhania 1,000 b Shrimati Pushpawati Devi wife of Lakshmipat her minor son natural guardian of Harishankar .
In companysideration of the fact that the assessee firm promoted the companypany the assessee was appointed the managing agent of M s. J. K. Iron and Steel Company Ltd. for a period of 25 years under a managing agency agreement dated December 15, 1938.
The letter of the assessee was companysidered by the managed companypany at the meeting of its Board of Directors on September 2, 1943.
1,000 2,000 V. a Shri P.D. Chandra Rana.
The amount of Rs.
The managing agency of the assessee was thereafter terminated with effect from November 1, 1943 and M s. J. K. Commercial Corporation were appointed the managing agents with effect from that date.
2 lakhs was received by the assessee by virtue of its office and relate to the work of the managing agency even though the payment was companylusive and there was numberreal termination of the managing agency agreement.
b Shri Gorikkishan Jaipuria Munim of J.K. Kanpur Kothi c Shri S.M. Bashir, Director J.K. Iron and Steel Co., Ltd. d Lala S.D. Garg e Lala Sital Prasad, Director of J.K. Woollen Mills.
There was numbercontract by reason of which the assessee was under any obligation to finance the business of the companypany.
Sri Padampat Singhania thereupon pointed out that ever though the matter of providing finance might be at the discretion of the managing agents it was the usual practice with companypanies under the management of the managing agents to obtain their finance from the managing agents.
Padampat.
2 lacs should be paid as soon as an agreement was arrived at with the J. K. Commercial Corporation for taking over the managing agency of the companypany.
Both these companytentions were rejected by the Income Tax Officer and by the Appellate Assistant Commissioner in appeal.
5 lakhs was discussed.
Sri Padampat Singhania 17 per cent.
There was numberprovision in the Articles of Association of the managed companypany for terminating the managing agency except in the case of the managed companypany being wound up in which case, the managing agents were to receive companypensation for loss of appointment.
The assessee thereafter preferred second appeals to the Income Tax Appellate Tribunal.
In these appeals the assessee abandoned the companytention regarding the legality of the proceedings under s. 34 of the Income Tax Act and s. 15 of the Excess Profits Tax Act and companyfined its argument merely to the point that the sum was number liable to be charged to tax.
Sri Lakshmipat Singhania, one of the Directors of the managed companypany reported in the meeting that a new floated companypany under the name and style of J. K. Commercial Corporation was willing to make advance provided it was appointed the managing agent of the companypany.
There was also the exception provided under the general law in case of fraud or gross negligence on the part of the managing agents.
Ramaswami J. These appeals are brought by special leave from the judgment of the a Allahabad High Court dated July 10, 1962, in Income tax Miscellaneous Cases Nos.
Sri Kailashpat Singhania 17 per cent.
The firm may charge interest at one per cent.
It was decided that the sum of Rs.
At this meeting a letter dated August 3, 1943, for M s. Juggilal Kamlapat, Bankers, the fanciers of the managed companypany, asking for re payment of advances made by the financier to the companypany exceeding Rs.
The directors present were 1 Sri Padampat Singhania, 2 Sri Lakshmipat Singhania and 3 Sri S. M. Bashir with Sri Padampat Singhania in the chair.
a Lala Radhakishan Singhania uncle of Sri Padam pat.
b Lala Purshottamdas Singhania companysin of Sri Padampat.
The amount was claimed by the assessee as companypensation for loss of office number liable to tax under the Income tax Act as a capital receipt.
20,00,000 at any one time, but they may, however at their option lend and advance even more money if so required by the companypany.
The assessee challenged these assessments on the ground that the proceedings under s. 34 of the Income Tax Act and under s. 15 of the Excess Profits Tax Act were invalid and on merits therefore there was numberjustification for the inclusion of the sum of Rs.
Late on who it was discovered that the assessee had received the sum from the managed companypany the assessment was reopened under section 34 of the Income tax Act and proceedings were also taken under section 15 of the Excess Profits Tax Act for the companyresponding chargeable accounting period and the amount was included in the total companyputation of the assessees business income.
