Direct Taxation assessment of income – Section 4 of Partnership Act appellant a registered company entered into an agreement with Mill company appointing its agent for thirty years – amount received by appellant from Mill company were assessed under income tax – appellant contended remuneration received from the Mills company was not taxable as it was not profit or gains from business – following question.
High Court – whether under the terms of the agreement the petitioner is an employee of the Mills Company or is carrying on business – whether the remuneration received from the Mills is on account of service or is the remuneration for business – matter decided against appellant – appellant moved to the Supreme Court – Court observed the objects of the appellants in this case inter alia were to act as agents for Government – appellants were therefore rightly assessed for excess profits tax. JUDGMENT
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1. These are two appeals from the judgment and decision of the High Court of Judicature at Hyderabad answering certain questions referred at the instance of the 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. 2. 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 received by them from the Mills Company was not taxable on the ground that it is was not income, profits or gains from business and was outside the pale of the Excess Profits Tax Regulation.
This contention of the appellants was negatived and on the 24th April, 1944, the Excess Profits Tax Officer made an order assessing the income of the appellants for the accounting periods 1351 and 1352 Fasli at Rs. 8,957 and Rs. 83,768 respectively and assessed the tax accordingly. An appeal was taken by the appellants to the Deputy Commissioner of Excess Profits Tax who disallowed the same.
An application made by the appellants under section 48(2) for statement of the case to the High Court was rejected by the Commissioner and the appellants filed a petition to the High Court under section 48(3) to compel the Commissioner to state the case to the High Court. An order was made by the High Court on this petition directing the Commissioner to state the case and the statement of the case was submitted by the Commissioner on the 26th February, 1946. Four questions were referred by the Commissioner to the High Courts as under :- (1) Whether the Petitioner Company is a partnership firm or a registered firm ?
(2) Whether under the terms of the agreement the petitioner is an employee of the Mills Company or is carrying on business ? (3) Whether the remuneration received from the Mills is on account of service or is the remuneration for business ? (4) Whether the principle of personal qualification referred to in section 2, clause (4), of the Excess Profits Regulation is applicable to the Petitioner Company ? 3. These questions were of considerable importance and were referred for decision to the Full Bench of the High Court.
The Full Bench of the High Court delivered their judgment the majority deciding the questions (2) and (3) which were the only questions considered determinative of the reference against the appellants. The appellants appealed to the Judicial Committee. But before the Judicial Committee heard the appeals there was a merger of the territories of Hyderabad with India. The appeals finally came for hearing before the Supreme Court Bench at Hyderabad on the 12th December, 1950, when an order was passed transferring the appeals to this Court at Delhi. These appeals have now come for hearing and final disposal before us.
4. The questions (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 not a registered company as such could be said to be possessed of any personal qualification in the matter of the acquisition of that income.
5. 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.
6. 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) To act as agents for Governments or Authorities or for any bankers, manufactures, merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business. (2) To carry on in India and elsewhere the trade or business of merchants, importers exporters in all their branches etc. etc…….
7. Under Article 115 of the Articles of Association of the Mills Company the appellants and their assigns were appointed the agents of the Company upon the terms, provisions and conditions set out in the Agreement referred to in clause 6 of the Company’s Memorandum of Association.
Article 116 provided that the general management of the business of the Company subject to the control and supervision of theDirectors, was to be in the hands of the Agents of the Company, who were to have the power and authority on behalf of the Company, subject to such control and supervision, to enter into all contracts and to do all other things usual, necessary and desirable in the management of the affairs of the Company.
Or in carrying out its objects and were to have power to appoint and employ in or for the purposes of the transaction and management of the affairs and business of the Company, or otherwise for the purposes thereof, and from time to time to remove or suspend such managers, agents, clerks and other employees as they though proper with such powers and duties and upon such terms as to duration of employment, remuneration or otherwise as they thought fit and were also to have powers to exercise all rights and liberties reserved and granted to them by the said agreement referred to in clause 6 of the Company’s Memorandum of Association including the rights and liberties contained in clause 4 of the agreement.
Article 118 authorised the agents to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them, and in particular from time to time to provide by the appointment of an attorney or attorneys, for the management and transaction of the affairs of the Company in any specified locality, in such manner as they thought fit.
8. The Agency agreement which was executed in pursuance of the appointment under Article 115 provided that the appellants and their assign were to be the Agents of the Company for a period of 30 years from the date of registration of the Company and they were to continue to act as such agents until they of their own will resigned.
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