Whether chartered accountant, where service is rendered by him professionally and not as an officer on company, is disqualified under clause (b) of sub‑section (3) - Companies Law - Letter No. 8/1/57‑PR,

Circular : Letter No. 8/1/57 ‑ PR, dated 11 ‑ 7 ‑ 1957. Subject:- Whether chartered accountant, where service is rendered by him professionally and not as an officer on company, is disqualified under clause (b) of sub‑section (3) The Government have examined the question whether on his engagement as the income‑tax consultant of a company either on payment of ad hoc fee or fees plus retainer or on fixed periodical remuneration, a practising chartered accountant is to be regarded as an officer or employee of the company for the purpose of section 226(3)(b), and consequently as being disqualified for appointment as auditor of the company. The legal position is as follows : Where the chartered accountant is employed whole‑time, he is an employee of the company. In other cases generally speaking, there would appear to be only a contract for service and not a contract of service between the company and the chartered accountant. In Dharangdhara Chemicals Works v. State of Saurashtra [1957] SCC 216, the Supreme Court has laid down that the prima facie test for the determination of the relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do, but also the manner in which he shall do his work, or, to borrow the words of Lord Uthwatt, the proper test is whether or not the hirer had authority to control the manner of execution of the act in question . Applying this test in any case, where the chartered accountant is consulted only professionally on income‑tax matters by a company, he cannot be said to be an officer or employee of the company. A chartered accountant s main business is to render professional service for reward like a lawyer or a doctor. Where such service is rendered professionally and not as an officer or employee of the company, a chartered accountant is not disqualified under section 226(3)(b).