AMAR NATH KHANDELWAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AMAR Nath Khandelwal, the assessee, was carrying on, inter alia, a business as the agent in Delhi and Himachal Pradesh to a business firm in Bombay carried on under the name and style of M/s American Springs and Pressing Works. The applicant had been acting as an agent for the said firm since 1955. On January 1, 1960, the firm was converted into a private limited company. The assessee continued to work as agent for the new company and the terms and conditions of such appointment as agent were reduced to writing by an agreement dated August 18, 1960. By this agreement, the assessee was appointed as the agent of the company for a period of three years ending on December 31, 1963. The agreement was terminable by three months' notice by either side in writing. But it was renewable by mutual consent after December 31, 1962.

(2.) THE function of the assessee was to secure contracts for the principals for supplies of various types of goods and machinery produced by the principals primarily with various Government Departments and public organisations. The assessee was entitled to commission on the catalogue prices of the goods supplied. For this purpose, the goods were divided into two categories, A and B, and the commission on items in category B was a little higher than the commission in respect of items in category A. Moreover, the percentage of commission also depended upon the time within which the principals received payments for the supplies made by them. The scale of payment of commission was a sliding scale, the maximum percentage being available to the assessee if the payment of the bills was received within sixty days from the date of despatch of the goods and the minimum when such payment was received after more than a year after the date of relative despatch. There was also a provision for the grant of a higher rate of commission on certain items of goods or on all sales if the board of directors of the principals so decided after reviewing the efforts of the assessee and the other relative circumstances. But it was specifically stipulated that the assessee will not have any claim on such commission until he was notified of such a decision by the board of directors of such extra commission having been allowed. There was also a clause which gave an option to the principals to require the agents to share the reduced price at which the implements might be quoted against tender enquiry from their territory and supplied at such reduced rates. Clause II(7) provided :

(3.) THE assessee was returning the income derived by him for the proprietary business of agency which was carried on by him from 1955 onwards and he was being assessed in respect thereof. On December 31, 1960, however the assessee converted the business into that of a firm. He executed an instrument of partnership with his son, Narendra Nath Khandelwal, and took the latter as an equal partner in the business. The following clauses of the partnership deed are relevant :