Agent - Definition / Legal Terminology - Income Tax

As per section 182 of the Indian Contract Act, 1872 Agent and principal means - An agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the principal . As per section 184. Who may be an agent - As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained. Obligation to deduct tax at source in terms of Section 194-H- BHARTI CELLULAR LIMITED (NOW BHARTI AIRTEL LIMITED) - 2024 (3) TMI 41 - SUPREME COURT Agency is a triangular relationship between the principal, agent and the third party. In order to understand this relationship, one has to examine the inter se relationship between the principal and the third party and the agent and the third party. When we examine whether a legal relationship of a principal and agent exists, the following factors/aspects should be taken into consideration: (a) The essential characteristic of an agent is the legal power vested with the agent to alter his principal s legal relationship with a third party and the principal s co-relative liability to have his relations altered. F.E. Dowrick, The Relationship of Principal and Agent, 17 MLR 24, 37 (1954) (b) As the agent acts on behalf of the principal, one of the prime elements of the relationship is the exercise of a degree of control by the principal over the conduct of the activities of the agent. This degree of control is less than the control exercised by the master on the servant, and is different from the rights and obligations in case of principal to principal and independent contractor relationship. (c) The task entrusted by the principal to the agent should result in a fiduciary relationship. The fiduciary relationship is the manifestation of consent by one person to another to act on his or her behalf and subject to his or her control, and the reciprocal consent by the other to do so. RESTATEMENT (THIRD) OF AGENCY (AMERICAN LAW INSTITUTE PUBLISHERS 2007) (d) As the business done by the agent is on the principal s account, the agent is liable to render accounts thereof to the principal. An agent is entitled to remuneration from the principal for the work he performs for the principal. An agent is distinct from a servant, in that an agent is subject to less control than a servant, and has complete, or almost complete discretion as to how to perform an undertaking. As Seavey said, a servant (...) is an agent under more complete control than is a nonservant . Warren A. Seavey, The Rationale of Agency, 29 YALE L.J. 859, 866 (1920) The difference is in the degree of control rather than in the acts performed. The servant sells primarily his services measured by time; the agent his ability to produce results. Ibid. This distinction can be criticised, for servants may have very wide discretion, and may not really be subject to control at all in practice, while agents may have their power to act circumscribed by detailed instructions. G.H.L. FRIDMAN, THE LAW OF AGENCY 33 (Butterworths, 7 ed. 1996) .....the term agent denotes a relationship that is very different from that existing between a master and his servant, or between a principal and principal, or between an employer and his independent contractor. Although servants and independent contractors are parties to relationships in which one person acts for another, and thereby possesses the capacity to involve them in liability, yet the nature of the relationship and the kind of acts in question are sufficiently different to justify the exclusion of servants and independent contractors from the law relating to agency. In other words, the term agent should be restricted to one who has the power of affecting the legal position of his principal by the making of contracts, or the disposition of the principal s property; viz. an independent contractor who may, incidentally, also affect the legal position of his principal in other ways. This can be ascertained by referring to and examining the indicia mentioned in clauses (a) to (d) in paragraph 8 of this judgment. It is in the restricted sense in which the term agent is used in Explanation (i) to Section 194-H of the Income Tax Act, 1961.