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TMI Blog1954 (4) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants appointing the appellants its Agents for a period of 30 years on certain terms and conditions therein recorded. The appellants throughout worked only as the Agents of the Mills Company and for the Fasli years 1351 and 1352 they received their remuneration under the terms of the Agency agreement. A notice was issued under section 13 of the Hyderabad Excess Profits Tax Regulation by the Excess Profits Tax Officer calling upon the appellants to pay the, amount of tax appertaining to these chargeable account- , ing periods. The appellants submitted their accounts and contended that the remuneration received by them from the Mills Company was not taxable on the ground that it is was not income, profits or gains from business and was outside the pale of the Excess Profits Tax Regulation. This contention of the appellants was negatived and on the 24th April, 1944, the Excess Profits Tax Officer made an order assessing the income of the appellants for the accounting periods 1351 and 1352 Fasli at ₹ 8,957 and ₹ 83,768 respectively and assessed the tax accordingly. An appeal was taken by the appellants to the Deputy Commissioner of Excess Profits Tax who disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that income. The principal questions which were therefore argued before the High Court at Hyderabad and before us were the questions (2) and (3) which involved the determination of the position of the appellants whether they were servants or agents of the Mills Company and the determination of the character of their remuneration whether it was wages or salary or income, profits or gains from business. The appellants were registered as a private limited company having their registered office in Bombay and the objects for which they were incorporated were the following: (1)To act as agents for Governments or Authorities or for any bankers, manufacturers, merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business. (2)To carry on in India and elsewhere the trade or business of merchants, importers exporters in all', their branches etc. etc............ Under Article 115 of the Articles of Association of the Mills Company the appellants and their assigns were' appointed the agents of the Company upon the terms, provisions and conditions set out in the Agreement referred to in clause 6 of the Company's Memorandum of Association. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on with the. business of the Company and supervision and management thereof and the appelants were entitled to appoint any person or persons in Bombay to act as their Agents in Bombay and any other places in connection with the business if the Company. Clauses 3 and 4 of the agency agreement are important and may be set out in extenso :- 3. Subject to the control and supervision of the Directors, the said Lachminaravan Ramgopal and Son Limited shall have the general conduct and management of the business and affairs of the company and shall have on behalf of the company to acquire -by purchase lease or otherwise lands tenements and other Buildings and to erect maintain alter and extend factores ware-houses, engine house and other buildings in Hyderabad and' elsewhere in the territories of His Exalted Highness the Nizam and in India and to purchase, pay for, sell, resell, and repurchase machinery, engines, plant, raw cotton, waste, jute, wool and other fibres and produce, stores and other materials and to manufacture yarn cloth and other fabrics and to sell the same either in the said territories as well as elsewhere in India and either on credit or for cash, or for presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and the questions that arise before us have to be determined only on these materials. If on the construction of these documents we arrive at the conclusion that the position of the appellants was not that of servants but the agents of the Company the further question would have to be determined whether the activities of the appellants amounted to the carrying on of business. If they were not the servants of the Company, the remuneration which they received would certainly not be wages or salary but if they were agents of the Company the question would still survive whether their activities amounted to the carrying on of business in which case only the remuneration which they received from the Company would be income, profits or gains from business. The distinction between a servant and an agent is thus indicated in Powell's Law of Agency, at page 16 : -- (a)Generally a master can tell his servant what to do and how to do it. (b) Generally a principal cannot tell his agent how to carryout his instructions. (c) A servant is under more complete control than an agent, and also at page 20:- (a)Generally, a servant is a person who not only receives instructions fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l management of the business of the Company subject to the control and supervision of the Directors. That does not however mean that they acted under the direct control and supervision of the Directors in regard to the manner or method of their work. The Directors were entitled to lay down the general policy and also to give such directions in regard to the management as may be considered necessary. But the day to day management of the business of the Company as detailed in Article I 1 6 of the Articles of Association and clause 3 of the Agency Agreement above set out was within the discretion of the appellants and apart from directing what work the appellants had to do as the agents of the Company the Directors had not conferred upon them the further right to direct how that work of the general management was to be done. The control and supervision of the directors was a general control and supervision and within the limits of their authority the appellants as the agents of the Company had perfect discretion as to how that work of general management was to be done both in regard to the method and the manner of such work. The appellants for instance had perfect latitude to enter in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants were the agents of the Company and not merely the servants of the Company remunerated by wages or salary. Even though the position of the appellants qua the Company was that of agents and not servants as stated above it remains to be determined whether the work which they did under the Agency Agreement amounted to carrying on business so as to constitute the remuneration which they received thereunder income, profits or gains from business. The contention which was urged before us that the appellants only worked as the agents of the Mills Company and no others and therefore what they did did not constitute a business does not avail the appellants. The activities in order to constitute a business need not necessarily be concerned with several. individuals or concerns. They would constitute business in spite of their being restricted to only one individual or concern. What is relevant to consider is what is the nature and scope of these activities though either by chance or design these might be restricted to only one individual or concern. It is the nature and scope of these activities and not the extent of the operations which are relevant for this purpose. The activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on the profession. of naval architects and consulting engineers and the work done by the company was identical in character with that formerly done by the partnership which it succeeded. The work done by the company was identical in all respects with the work of a professional naval architect and consulting engineer, and was performed by the said three shareholders and directors of the company personally. A question arose whether the company was carrying on a profession within the meaning of section 39 paragraph C of the Finance (No. 2) Act, 1915. It was contended that it carried on a profession of naval architects and consulting engineers because the members composing it were three naval architects. That contention was however negatived and it was held that even though what was to be looked at was the character of the work done by the company, it was not carrying on the profession of the naval architects within the meaning of the section, because for that purpose it was of the essence of a profession that the profits should be dependent mainly upon the personal qualifications of the person by whom it was carried on and that could only bean individual. A company such as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of enterprise is carrying on business or not, it is material to look and see whether it is a company that it; doing it. The objects of an incorporated company as laid down in the Memorandum of Association are certainly not conclusive of the question whether the activities of the company amount to carrying on of business. (See Indian Law Reports 55 Calcutta 1059 and (1951] 19 I.T.R. 571). But they are relevant for the purpose of determining the nature and scope of such activities. The objects of the appellants in this case inter alia were to act as agents for Governments or Authorities or for any bankers, manufacturers, merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business. This object standing by itself would comprise within its ambit the activities of the appellants as the agents of the Company and constitute the work which they did by way of general management of the business of the company an agency business. The words carry on all kinds of agency business occurring at the end of the object as therein set out were capable of including within their general description the work which the appellants would do as agents for Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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