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Issues: Interpretation of agreement between applicant and Central Bank of India as treasurer and guarantee commission agent under Excess Profits Tax Act.
The judgment by the Allahabad High Court involved a reference under the Excess Profits Tax Act and the Indian Income-tax Act regarding the interpretation of an agreement dated 8th December 1935 between the applicant and the Central Bank of India. The agreement appointed the applicant as treasurer and guarantee commission agent at various branches. The duties of the applicant as treasurer included managing cash department staff, ensuring safe custody of assets, and being liable for any loss caused to the bank. As a guarantee commission agent, the applicant recommended borrowers to the bank and was responsible for their repayment, providing security, and incurring expenses for borrower solvency checks. The agreement specified separate remunerations for the roles of treasurer and guarantee commission agent. The Court considered the distinction between service and business income. It highlighted that a servant works under the control of a master, while a businessperson operates independently with an interest in profits and losses. The Court analyzed previous cases to determine the nature of the relationship between the applicant and the bank. It emphasized that the applicant's work as treasurer involved serving the bank under its control, while his role as a guarantee commission agent indicated a business interest with risks and discretion. The Court referred to cases like L. N. Gadodia and Co., L. Jeewan Lal v. CIT, Inderchand Hari Ram v. CIT, and P. Stanwill and Co. v. CIT to establish the criteria for distinguishing between service and business agreements. The Court rejected the argument that the income should not be split due to a single agreement. It cited precedents where income was divided based on distinct roles performed by an individual. Ultimately, the Court concluded that the remuneration received by the applicant as treasurer was salary for service to the bank, while the income earned as a guarantee commission agent constituted business income under the Excess Profits Tax Act. The judgment provided a detailed analysis of the agreement terms and the nature of the applicant's responsibilities, emphasizing the different characteristics of service and business income in the context of the roles performed by the applicant for the Central Bank of India.
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