TMI Blog1954 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants by the Commissioner of Excess Profits Tax, Hyderabad, and adjudging the liability of the appellants for excess profits tax in regard to the amounts received by them as remuneration from the Dewan Bahadur Ramgopal Mills Company Ltd. as its agents. The Mills Company was registered on the 14th February, 1920, at Hyderabad in the then territories of His Exalted Highness the Nizam. The appellants were registered as a private limited company at Bombay on the 1st March, 1920. On the 20th April, 1920, an agency agreement was entered into between the Mills Company and the appellants appointing the appellants its agents for a period of 30 years on certain terms and conditions therein recorded. The appellants throughout worked only as the agents of the Mills Company and for the Fasli years 1351 and 1352 they received their remuneration under the terms of the agency agreement. A notice was issued under Section 13 of the Hyderabad Excess Profits Tax Regulation by the Excess Profits Tax Officer calling upon the appellants to pay the amount of tax appertaining to these chargeable accounting periods. The appellants submitted their accounts and contended that the remuneration recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (1) and (4) which were referred by the Commissioner to the High Court at Hyderabad have not been seriously pressed before us. Whether the appellants are a partnership firm or a registered company the principle of exclusion of the income from the category of business income by reason of its depending wholly or mainly on the personal qualifications of the assessee would not apply because the income could not be said to be income from profession and neither a partnership firm nor a registered company as such could be said to be possessed of any personal qualifications in the matter of the acquisition of that income. The principal questions which were therefore argued before the High Court at Hyderabad and before us were the questions (2) and (3) which involved the determination of the position of the appellants whether they were servants or agents of the Mills Company and the determination of the character of their remuneration whether, it was wages or salary or income, profits or gains from business. The appellants were registered as a private limited company having their registered office in Bombay and the objects for which they were incorporated were the following :-- (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such agents until they of their own will resigned. The remuneration of the appellants as such agents was to be a commission of 2 1/2 per cent. on the amount of sale proceeds of all yarn cloth and other produce of the company (including cotton grown) which commission was to be exclusive of any remuneration or wages payable to the bankers, solicitors, engineers, etc., who may be employed by the appellants for or on behalf of the company or for carrying on and conducting the business of the company. The appellants were to be paid in addition all expenses and charges actually incurred by them in connection with the business of the company and supervision and management thereof and the appellants were entitled to appoint any person or persons in Bombay to act as their agents in Bombay and any other places in connection with the business of the company. Clauses 3 and 4 of the agency agreement are important and may be set out in extenso :-- 3. Subject to the control and supervision of the directors, the said Lachminarayan Ramgopal and Son Limited shall have the general conduct and management of the business and affairs of the company and shall have on behalf of the company to acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither before or after such dealings. Clause 8 provided that two of the members for the time being of the appellants were at the option of the appellants to be the ex-officio directors of the company and clause 9 empowered the appellants to assign the agreement and the rights of the appellants thereunder subject to the approval and sanction of the board to any person, firm or company having authority by its constitution to become bound by the obligations undertaken by the appellants. No materials other than these were placed by the appellants either before the Income-tax authorities or the High Court and the questions that arise before us have to be determined only on these materials. If on the construction of these documents we arrive at the conclusion that the position of the appellants was not that of servants but the agents of the company the further question would have to be determined whether the activities of the appellants amounted to the carrying on of business. If they were not the servants of the company the remuneration which they received would certainly not be wages or salary but if they were agents of the company the question would still survive whether their ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s authority in accordance with all lawful instructions which may be given to him from time to time by his principal, is not subject in its exercise to the direct control or supervision of the principal. An agent as such is not a servant, but a servant is generally for some purposes his master's implied agent, the extent of the agency depending upon the duties or position of the servant." Considering the position of the appellants in the light of the above principles it is no doubt true that the appellants were to act as the agents of the company and carry on the general management of the business of the company subject to the control and supervision of the directors. That does not however mean that they acted under the direct control and supervision of the directors in regard to the manner or method of their work. The directors were entitled to lay down the general policy and also to give such directions in regard to the management as may be considered necessary. But the day to day management of the business of the company as detailed in Article 116 of the articles of association and clause 3 of the agency agreement above set out was within the discretion of the appellants and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also would be hardly consistent with the employment of the appellants as mere servants of the company. The remuneration by way of commission of 21 per cent. of the amount of sale proceeds of the produce of the company savoured more of the remuneration given by a principal to his agent in the carrying out of the general management of the business of the principals than of wages or salary which would not normally be on such a basis. All these circumstances together with the power of sub-delegation reserved under Article 118 in our opinion go to establish that the appellants were the agents of the company and not merely the servants of the company remunerated by wages or salary. Even though the position of the appellants qua the company was that of agents and not servants as stated above it remains to be determined whether the work which, they did under the agency agreement amounted to carrying on business so as to constitute the remuneration which they received thereunder income, profits or gains from business. The contention which was urged before us that the appellants only worked as the agents of the Mills Company and no others and therefore what they did not constitute a busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business so as to constitute the income earned by it income, profits or gains from business. Reference may be made in this context to William Esplen, Son and Swainston, Limited v. Commissioners of Inland Revenue. In that case a private limited company was incorporated for carrying on business as naval architects and consulting engineers. Before the formation of the company, a partnership had existed for many years between three persons who, on incorporation, became the sole shareholders and directors of the company. The partnership had carried on the profession of naval architects and consulting engineers and the work done by the company was identical in character with that formerly done by the partnership which it succeeded. The work done by the company was identical in all respects with the work of a professional naval architect and consulting engineer, and was performed by the said three shareholders and directors of the company personally. A question arose whether the company was carrying on a profession within the meaning of Section 39, Para. C. of the Finance (No. 2) Act, 1915. It was contended that it carried on a profession of naval architects and consulting engineers becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some particular purpose, and if it comes into existence for the particular purpose of carrying out a transaction by getting possession of concessions and turning them to account, then that is a matter to be considered when you dome to decide whether doing that is carrying on a business or not." Justice Rowlatt followed the above view of Lord Sterndale, M.R., in Commissioners of Inland Revenue v. Birmingham Theatre Royal Estate Co., Limited, and held that "when you are considering whether a certain form of enterprise is carrying on business or not, it is material to look and see whether it is a company that is doing it." The objects of an incorporated company as laid down in the memorandum of association are certainly not conclusive of the question whether the activities of the company amount to carrying on of business. (See Commercial Properties Ltd., In re and East India Prospecting Syndicate v. Commissioner of Excess Profits Tax, Calcutta). But they are relevant for the purpose of determining the nature and scope of such activities. The objects of the appellants in this case inter alia were to act as agents for Governments or Authorities or for any bankers, manufacturers, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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