TMI Blog1950 (5) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the income derived by it from this selling agency business is not the income, profits or gains from a business but is the payment for services rendered by the company in the capacity of a servant the master being the British India Corporation, Limited. the claim thus was that all the income received from this selling agency business was salary which was outside the scope of the Excess Profit Tax Act. The Excess Profit Tax Officer the Appellate Assistant Commissioner Excess Profits, Tax and the Income Tax Appellate Tribunal held that the receipts from this business were business profits and consequently assessed excess profits tax on it. In addition to this selling agency business, a retail cloth shop was also run at Kanpur which managed by this firm. For the chargeable accounting period, the company was paid a sum of ₹ 27,030-15-0 purporting to be payment for meeting cost of advertisement and salaries of travelling representative in respect of the running and management of this retail shop. The Excess Profits Tax Officer treated this amount also as income, profits or gains from business and assessed this amount to excess profits tax. The contention of the firm was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erion for determining whether a firm is acting in the capacity of a servant or in the capacity of running its own business as an agent should be the amount of control that was exercised by the principle firm. He referred to the agreement between the Corporation and Messrs. L. N. Gadodia and company to show that in the following matters, the latter came completely under the control of the former :- (a) All sales were to be effected by Messrs. L. N. Gadodia and Company at current market rates subject to the approval of the managing directors of the Corporation or the management of the Cawnpore Cotton Mills Company; (b) The services of Mr. D. Sharma were not to be dispensed with by Messrs, L. N. Gadodia and Company without the prior sanction of the Corporation; (c) Messrs. L. N. Gadodia and Company were, at the all times, to use their utmost endeavours to dispose of the entire production of Bazar Yarns and Cloth by the Cawnpore Cotton Mills company at market rates ruling at the time of sale; and (d) The proprietors of Messrs. L. N. Gadodia and Company or their representative, Mr. D. Sharma, were required to attend daily, or as required, at the office of the Corporation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to choose their employees, to appoint and dismiss them. They had the choice of the parties with whom it enter into contracts for selling goods. They could appoint their own travelling agents, and they were, in no way, subject to the control of the Corporation in the matter of establishment and organisation to be maintained by them. These powers of theirs were only subject to two conditions, viz., that the sale contracts entered into by them with other parties were subject to the approval of the Corporation and one of their employees, Mr. D. Sharma, Manager, was not to be removed from service without the previous sanction of the Corporation; (2) the discount and brokerage on all transactions were to be paid by Messrs. L. N. Gadodia and Company out of their commission; (3) they were entitled to receive a commission even on direct sales effected by the Corporation to any customer either in or out of Kanpur; (4) they were liable to make payment for all the goods on delivery thereof whether or not the goods were actually paid for by the purchased with whom they might have entered into contract of sale with the approval of the managing directors of the British India Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were liable to be assessed to excess profits tax. The facts relating to the running or management of the retail cloth shop of the Cawnpore Cotton Mill Company are, however, different. The statement of the case shows that this retail shop was owned by the Cawnpore Cotton Mills Company though the management of the shop was entrusted to Messrs. L. N. Gadodia and Company. There was no written agreement relating to this business so that there was nothing to show what the relationship was between this firm and the owner of the shop and it was not known what sort of responsibility lay on the firm in the running or management of the shop. It was admitted that no fixed remuneration was to be paid the firm and on behalf of the firm it was contend that it was entirely in the discretion of the management of the Corporation or of the Cawnpore Cotton Mills Company that the location of the resale shop was made. It was argued that if the Corporation did not pay the firm any portion of the profits of the retail shop, the firm would not be entitled to any payment. These contentions were not found by the Tribunal to be wrong and the Tribunal proceeded to hold, that in spite of these contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the selling agency business must be increased to the extent of the amount out of ₹ 27,030-15-0, required to reimburse the expenses mentioned above, for the purposes of assessing the excess profits tax payable by the firm. Our answer to the question formulated by the Tribunal accordingly is that, in the circumstance of this case, for the chargeable accounting period 30th October, 1940 to 19th October, 1941, (a) the applicant-firm is liable to be assessed to the excess profits tax on the income, profits or gains derived by it from the selling agency business of the Cawnpore Cotton Mills Company; and (b) the applicant-firm is not liable to be assessed to excess profits tax on the income, profits or gains derived from the running or management of the retail cloth shop of the Cawnpore Cotton Mills Company, but the income, profits or gins derived from the running or management of the retail cloth shop of the Cawnpore Cotton Mills Company are liable to be increased by the amount which was received by the firm for actual reimbursement of the expense incurred by it on advertisement and salaries of travelling representative. In the circumstance of this case we make no order as to ..... 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