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TMI Blog1964 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... of certain kinds of dye-stuffs in the territory described as the Ahmedabad District under an agreement dated 29th October, 1928. It was provided by this agreement that Tejaji Farasram Kharawala shall act for Ciba (India) Limited for sale of certain kinds of dye-stuffs for and on behalf of Ciba (India) Limited and that Ciba (India) Limited shall pay to Tejaji Farasram Kharawala 12 per cent. commission on the net sale proceeds of the dye-stuffs sold by him or Ciba (India) Limited. This commission of 12 per cent. included all contingency expenses which Tejaji Farasram Kharawala might have to incur in connection with the performance of his duties as selling agent of Ciba (India) Limited. It appears that the selling agency of Ciba (India) Limited was taken by Tejaji Farasram Kharawala as manager and karta of the joint Hindu family which was carrying on business in the name of Messrs. Tejaji Farasram Kharawala and the agreement dated 29th October, 1928, was, therefore, treated as an agreement between Ciba (India) Limited and Messrs. Tejaji Farasram Kharawala. On 20th August, 1935, Ciba (India) Limited wrote a letter to Messrs. Tejaji Farasram Kharawala which was in the following terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any particular expenses within the meaning of section 4(3)(vi). This contention was rejected by the Tribunal which took the view that 5 per cent. was a special allowance specifically granted to the assessee for meeting contingency expenses such as commission to dyeing masters, agents, etc., which the assessee had to incur in the performance of its duties. It was then contended on behalf of the Commissioner that even if the other conditions of section 4(3)(vi) were satisfied, the assessee could not yet invoke the section in its favour since the assessee did not hold any office or employment of profit as required by the section. The Tribunal rejected this contention too, holding that the assessee, being the selling agent of Ciba (India) Limited for a particular territory, was the holder of an office of profit in the organization of Ciba (India) Limited and was, therefore, entitled to claim the benefit of the exemption granted by section 4(3)(vi) in respect of the amount of ₹ 1,90,538 received from Ciba (India) Limited. The Tribunal accordingly exempted the entire amount of ₹ 1,90,538 from tax under section 4(3)(vi). Here ended what we may call the first chapter in the his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred by the Tribunal, for that question was neither argued nor decided by the High Court in that decision. But that is a matter to which we shall advert a little later. The notice of motion having been dismissed and the reference having been decided in favour of the assessee, the Commissioner made an application to the High Court for leave to appeal to the Supreme Court. The application was rejected by the High Court whereupon the Commissioner preferred an application to the Supreme Court for special leave to appeal against the judgment and order of the High Court dismissing the notice of motion and deciding the reference in favour of the assessee. Special leave was granted by the Supreme Court and the appeal came up for hearing before the Supreme Court on 8th November, 1960. From the judgment of the Supreme Court it appears that the dismissal of the notice of motion was attacked on behalf of the Commissioner and it was contended that the question which the Commissioner wanted to be referred by the Tribunal to the High Court on the notice of motion was a question which arose out of the order of the Tribunal and that the High Court should have directed the Tribunal to state a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company from Messrs. Ciba (India) Ltd., or the portion thereof which was not expended in the course of the carrying on of the selling agency business is exempt from tax under section 4(3)(vi) of the Act'? and that the said High Court on receipt of the said statement of the case Do hear and dispose of the reference in accordance with law. 2.That the costs of this appeal Shall be costs in the reference. By the time the order was made by the Supreme Court, the State of Bombay was bifurcated and the matter, therefore, came to this court, Pursuant to the order of the Supreme Court this court restored Reference No. 28 of 1954 and made an order in the reference directing the Tribunal to state a case for the opinion of this court on the question specified in the order of the Supreme Court and the Tribunal accordingly stated a. case for the opinion of this court as directed by the order. The reference is, therefore, now before us and we are called upon to dispose it of in accordance with law. The question which we have to answer on the reference is a comprehensive one and takes in various approaches and the learned Advocate-General accordingly advanced before us thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en contended by the learned Advocate-General that in any event 5 per cent. received by the assessee from Ciba (India) Limited did not represent a special allowance specifically granted to the assessee for meeting contingency expenses, such as, commission to dyeing masters, agents, etc., and was, therefore, not within the scope and ambit of section 4(3)(vi). The argument of the learned Advocate-General was that under the agreement dated 29th October, 1928, the commission payable to the selling agent was 12 per cent. inclusive of contingency expenses which were to be borne by the selling agent and when the letter dated 20th August, 1935, was addressed by Ciba (India) Limited to the selling agent, all that happened was that Ciba (India) Limited agreed that out of the commission of 12 per cent. which would be paid to the selling agent, the selling agent may treat 7 per cent. as his own commission and 5 per cent. as compensation in lieu of contingency expenses, but that so far as Ciba (India) Limited was concerned, the commission would be 12 per cent. The learned Advocate-General relied very strongly on the words understood and same occurring in the following sentence in the let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, etc., which the selling agent may be required to meet in the course of performance of its duties, the conclusion becomes inescapable that 5 per cent. represented a special allowance specifically granted to the assessee for meeting those expenses. The use of the word compensation clearly indicates that 5 per cent. was given to the selling agent in order to enable the selling agent to meet contingency expenses which were required to be incurred by the selling agent in performance of its duties and it was, therefore, obviously a special allowance granted specifically to the selling agent for the purpose of meeting such expenses. This contention of the learned Advocate-General must, therefore, be rejected. The next contention urged by the learned Advocate-General was that in any event the assessee could not be said to hold an office or employment of profit within the meaning of section 4(3)(vi). To this contention a preliminary objection was raised on behalf of the assessee by Mr. B.G. Thakore. Mr. B.G. Thakore urged that the question whether the assessee held an office or employment of profit within the meaning of section 4(3)(vi) was referred by the Tribunal to the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal or become an additional question required to be answered before the reference could be disposed of. The notice of motion was, however, dismissed and the reference comprising only one question, namely, that referred by the Tribunal was disposed of by the High Court by answering the question in favour of the assessee. The Commissioner thereupon appealed. There was one single appeal presumably because the order dismissing the notice of motion and disposing of the reference was one single order as finally drawn up by the High Court. When the appeal came to be heard by the Supreme Court, the attack, as appears from the judgment of the Supreme Court, was first directed against the dismissal of the notice of motion. It was contended on behalf of the Commissioner that the notice of motion was wrongly dismissed by the High Court since the question which the Commissioner wanted to raise did arise out of the order of the Tribunal and should have been directed to be referred by the Tribunal to the High Court. The Supreme Court took the view that the contention of the Commissioner was well-founded and that the question suggested by the Commissioner should have been raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an appeal preferred to the Supreme Court, attack the validity of the answer given by the High Court to the question referred by the Tribunal. We cannot, therefore, accede to the contention of Mr. B.G. Thakore that the answer given by the High Court to the question referred by the Tribunal was impliedly confirmed by the Supreme Court or that it became final and immune from challenge by the Commissioner. But Mr. B.G. Thakore then contended that in any event the answer given by the High Court to the question referred by the Tribunal was binding so far as this court was concerned and it was not competent to the Commissioner to reagitate that question afresh before this court. There is in our opinion considerable force in this contention. As a matter of fact its validity flows directly from what we have said above in regard to the true position emerging from the order of the Supreme Court. The notice of motion having been allowed and the reference restored by the Supreme Court, the reference comprised two questions, one being the question referred by the Tribunal and the other being the question suggested by the Commissioner and specified in the order of the Supreme Court. The for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Advocate-General also relied on the words the appeal is allowed occurring in the last paragraph of the judgment of the Supreme Court. Now what we have said above affords a complete answer to this contention of the learned Advocate-General. What the Supreme Court did by its order was not to substitute the question specified in the order for the question originally referred by the Tribunal. Nowhere in the order do we find any direction given by the Supreme Court that the question specified by it was to be raised in substitution of the question originally referred by the Tribunal. Even from the judgment we do not find that the contention urged on behalf of the Commissioner and accepted by the Supreme Court was that the question suggested by the Commissioner should be raised in substitution of the original question. There is also nothing in the order to suggest that the Supreme Court set aside the answer given by the High Court to the question originally referred by the Tribunal which would necessarily be the consequence of accepting the argument of the learned Advocate-General. The argument of the learned Advocate-General amounts to this, namely, that the Supreme Court by its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was actually spent could be exempted under the section. Mr. G.N. Joshi who appeared on behalf of the Commissioner did not even attempt to argue that the assessee did not hold an office or employment of profit and there was accordingly no occasion for the court to consider that question. We cannot, therefore, regard the decision given by the High Court of Bombay on 15th February, 1955, on the present reference binding upon us as a judicial precedent and we must proceed to consider the question on its own merits. What then is the true meaning of the expression office or employment of profit occurring in section 4(3)(vi) ? The learned Advocate-General contended that in the context and collocation of the words used in the section, the word employment took its colour from the preceding word profit and that the expression office or employment of profit meant a subsisting, permanent, substantive position, which had an existence independent of the person who filled it. The learned Advocate-General relied on certain decisions of the courts in England on the construction of similar words used in the English income-tax statutes. We shall presently examine these decisions, but may p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Schedule E in respect of the salary of Hall. The contention of the Crown was that Hall held an office or employment of profit falling within Schedule E as explained by the third rule in section 146 of the English Income Tax Act, 1842, and that the salary of Hall was, therefore, liable to be assessed in the hands of the assessee. Rowlatt J., who heard the case, was inclined to take the view that the words office or employment of profit as used in the English Income Tax Act, 1842, were intended to refer to an office or employment which was a subsisting, permanent, substantive position, which had an existence independent of the person who filled it, and which went on and was filled in succession by successive holders-and if this position was correct, Hall could not be said to be falling within Schedule E-but feeling himself bound by Attorney-General v. Lancashire and Yorkshire Ry. Co. [1864] 2 H. C. 792, in which it was common ground that permanent officials doing clerical work held public offices, the learned judge held that Hall was a holder of office or employment of profit within the meaning of Schedule A and was, therefore, assessable under that Schedule and that consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioners, and his successor shall be repaid such sum as he shall have paid on account of such portion of the year as aforesaid. The effect of these provisions clearly was that where there was a change in the person holding the office or exercising the employment during the year of assessment, the tax was to be assessed upon the person holding the office or exercising the employment at the time the assessment was made, but an adjustment was to be subsequently made between the persons holding the office or exercising the employment during the year of assessment so that the person assessed would ultimately have to pay tax only on the salary earned by him and not on the salary earned by his predecessor or predecessors. After referring to these provisions, Lord Atkinson observed that under the scheme of the Rules the entire year of assessment was treated as a unit of service, and the salary as a unit of recompense, not an aggregate of a number of smaller sums payable at different times, and each recompensing the service rendered during an independent fraction of the year and that the word successor was very significant and indicated continuity of the office or employment and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he words used in the English Income Tax Act, 1842, cannot, therefore, help us in arriving at a true construction of the words used in the Indian enactment. This view, we find, has also been taken by a Division Bench of the High Court of Bombay to which My Lord the Chief Justice was a party in Deorao Laxman v. Keshav Laxman [1958] 60 Bom. LR 217. There also Chainani J., as he then was, delivering the judgment of the court, held that a special meaning was given to the words office or employment of profit'' as used in the English Income Tax Act, 1842, having regard to the language of the Act and the context in which the words occurred. This decision of the House of Lords cannot, therefore, be regarded as an authority which should compel us to construe the words office or employment of profit occurring in section 4(3)(vi) in the manner suggested by the learned Advocate-General. The learned Advocate-General then relied on the decision of the House of Lords in MacMillan v. Guest [1942] AC 561; 24 Tax Cas. 190. In that case the question was whether a director of an English company, which was resident in the United Kingdom could be said to hold a public office within the Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a case under Schedule E to the English Income Tax Act, 1918. We have seen the rules under Schedule E to the English Income Tax Act, 1918, and we find that these rules contained the same provisions which were contained in Schedule E to section 146 of the English Income Tax Act, 1842, and which were relied upon by Lord Atkinson for taking the view set out above. There is no doubt therefore that it was in the context of these rules that the words office or employment of profit were construed by Lord Atkin and Lord Wright to mean an office or employment which has a subsisting, permanent, substantive position and which has an existence independent of the person who fills it. The same ground on which we declined to regard the decision of the House of Lords in Great Western Railway Company's case (Supra) as applicable to the construction of the words office or employment of profit in section 4(3)(vi) must also apply in relation to the decision of the House of Lords in this case. These decisions of the English courts based on the interpretation of the words office or employment of profit occurring in the English Income Tax Acts being out of the way, let us consider what thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , section 4(3)(vi) must apply. It is not necessary that such office or employment must have an independent existence apart from the assessee who fills it or that it must have any attribute of permanence so that it must continue to exist even apart from the assessee. An office or employment may be created for the first time by appointing a person to it and such office or employment would be within the meaning of section 4(3)(vi). The assessee in the present case was the selling agent of Ciba (India) Limited for a particular defined territory and it is really difficult to see how it can be said that a selling agent of a company for a particular defined territory does not hold an office of profit under the company. It is no doubt true, as contended by the learned Advocate-General, that a selling agent is not an employee of the company and cannot, therefore, be said to be holding an employment of profit under the company. But a selling agent could certainly be said to be holding an office of profit under the company as much as a director or a managing director would be doing. It does not matter that there is no permanent office of a selling agent created by a resolution passed by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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