1965 (11) TMI 33 - SC - Income Tax

Whether on a true interpretation of the deed of agreement dated 2nd January 1931 appointing the assessee as treasurer of the Allahabad Bank Limited income earned by the assessee from his activities as such treasurer fell to be computed under section 10 of the Act or section 7 or section 12 of the Income-tax Act? Held that - Taking into consideration the nature of the duties performed and the obligations undertaken together with the right to remuneration subject to compensation for loss arising to the bank from his own acts and omissions or of the servants introduced by him into the business of the bank the assessee may be regarded as following a vocation. The remuneration must therefore be computed under section 10 of the Income-tax Act and loss of profit suffered in that vocation in any year may be carried forward to the next year and be set off against the profit of the succeeding year. Appeal dismissed.

Issues Involved:

1. Interpretation of the deed of agreement dated January 2, 1931, regarding whether the income earned by the assessee as treasurer of the Allahabad Bank Ltd. should be computed under section 10, section 7, or section 12 of the Income-tax Act.
2. Eligibility of the assessee to claim a set-off of the loss suffered in the preceding year 1950-51 against the profits in the year under consideration, 1951-52, despite not appealing the Income-tax Officer's refusal to carry forward the loss under section 24(2) of the Act.

Issue-wise Detailed Analysis:

1. Interpretation of the Deed of Agreement:

The primary issue was whether the income earned by the assessee from his activities as treasurer of the Allahabad Bank Ltd. should be computed under section 10, section 7, or section 12 of the Income-tax Act. The court examined the terms of the agreement dated January 2, 1931, between the Allahabad Bank Ltd. and the assessee. The agreement appointed the assessee as treasurer for the bank's branches, sub-agencies, and pay offices, with specific duties, liabilities, and responsibilities. The agreement included clauses that detailed the treasurer's remuneration, duties, appointment and dismissal of staff, responsibility for losses, and other related covenants.

The court noted that the treasurer had significant control over the staff in the cash department, including the power to appoint, transfer, suspend, and dismiss staff members. The treasurer was responsible for the acts of the staff and had to make good any losses incurred by the bank due to embezzlement, theft, fraud, misconduct, or negligence by the staff. The agreement allowed the treasurer to appoint substitutes and required the treasurer to supervise the cash department's operations across various locations.

The court concluded that the treasurer's role was not that of a servant of the bank but rather an independent contractor. The remuneration received by the treasurer was not "salaries" within the meaning of section 7 of the Income-tax Act. Instead, the court found that the treasurer's activities constituted a vocation, and therefore, the income should be computed under section 10 of the Act.

2. Eligibility to Claim Set-off of Loss:

The second issue was whether the assessee could claim a set-off of the loss suffered in the preceding year 1950-51 against the profits in the year under consideration, 1951-52, despite not appealing the Income-tax Officer's refusal to carry forward the loss under section 24(2) of the Act. The court noted that under section 24(2) of the Income-tax Act, an assessee who sustains a loss of profits in any business, profession, or vocation in any year is entitled to carry forward the loss to the following year and set it off against the profits and gains from the same source.

The court clarified that the determination of whether the loss of the previous year could be set off against the profits of the subsequent year had to be made by the Income-tax Officer dealing with the assessment of the subsequent year. A decision recorded by the Income-tax Officer in the previous year that the loss could not be carried forward was not binding on the assessee.

The court held that the assessee was entitled to claim a set-off of the loss suffered in the preceding year 1950-51 against the profits in the year 1951-52, as the loss was incurred in the same vocation. The court emphasized that the assessee's right to carry forward the loss under section 24(2) was a statutory right, and the refusal by the Income-tax Officer in the previous year did not preclude the assessee from claiming the set-off in the subsequent year.

Conclusion:

The court concluded that the remuneration received by the assessee as treasurer of the Allahabad Bank Ltd. should be computed under section 10 of the Income-tax Act, as the activities constituted a vocation. The court also held that the assessee was entitled to claim a set-off of the loss suffered in the preceding year 1950-51 against the profits in the year 1951-52. Consequently, the appeal was dismissed with costs.

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