Vaidynathier Ramaswami JUDGMENT
Vaidynathier Ramaswami J.
1. 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. 255 and 256 of 1955.
2. The appellant, M/s. Juggilal Kamlapat, hereinafter called the "assessee", was a registered partnership firm having the following constituents :
3. The shareholding of the three Singhania brothers was 51 per cent constituting a majority of the shareholding in the partnership firm. The partners of the said firm floated a company, namely, M/s. J. K. Kron and Steel Company Ltd., the constitution 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. In consideration of the fact that the assessee firm promoted the company 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. It was provided in this agreement that the assessee will continue 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 company. According to the terms of the agreement the managing agent's remuneration was Rs. 1,500 per month and a commission of 10 per cent on net profits of the company after deducting all expenses and after charging depreciation. There was no provision in the Articles of Association of the managed company for terminating the managing agency except in the case of the managed company being wound up in which case, the managing agents were to receive compensation for loss of appointment. There was also the exception provided under the general law in case of fraud or gross negligence on the part of the managing agents. The relevant terms of the managing agency agreement were as follows :
4. 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 company with like powers and authorities remuneration and emoluments and subject to like terms and conditions as are herein contained.........."
5. Para 2(c) : "The firm may at their option from time to time lend and advance to and for the use of the company, money on interest to any extent as they may like, the same to run at a minimum rate of five per cent per annum provided that if the bank rate prevailing at the date of advance is higher than five per cent. The firm may charge interest at one per cent ab........