# 196U J-Ialisi11gh .1.\lfg. Co. Lid v. Union of India

- **Citation:** [1960] 3 S.C.R. 546
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Bench:** S. K. DAs, J. L. Kapcr, 1\I. 1-lmAYATCLLMI
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/196u-j-ialisi11gh-1-lfg-co-lid-v-union-of-india-1745
- **Pages:** 8

## Headnote

Excess Profits Tax-Managing Agency and Selling Agency
agreements-Construction-Delegation of Agency-Delegate, whether agent or employee-Remuneration and commission derived by
such delegate-Liability to tax-Indian Contract Act, 1872 (9 of
1872), s. 194.
By an order of the Ruler of the erstwhile State of Hyderabad
an institution was formed for the development of industries on
behalf of the Government, called the Industrial Trust Fund, to
be managed by a committee called Trustees.
In 1934 the Trustees
entered into agreements with two cotton mills situated in the
State by virtue of which they were appointed secretaries, treasurers and agents of the said mills.
They were gi ,·en the general
inanagement of the mills including the power to appoint employees and were also appointed selling agents of the mills.
By separate agreements the
Trustees were -given power to delegate to
other persons all or any
of the powers
under the agreements
subject to the approval of the Board of Directors of the respective
mills.
On December 6, 1938, the Truste~s entered into an agreement with the appellant whereby they delegated their powers in
his favour and appointed him as the managing agent of their
business as secretaries,
treasurers and
agents,
as also
selling
agent of the two mills, subject to their general control.
The appellant was to hold the office of managing agent and selling agent
for the remaining period of the original' managing agency and.
selling agency agreements.
The remuneration of the appellant for
the managing agency was fixed at Rs. 2,000 per month and a
commission of 21 per cent. out of the commission of 121- per cent.
per annum on the annual profits payable to the
Trustees.
For
the selling agency a separate commission was payable on the sale
of different kinds of goods.
Clause 9 of the agreement provided
. .
·:
-·
... -
)
3 S.C.R.
SUPREME COURT REPORTS
547 .
that the managing agent shall not assign the benefit of the agreeJ961J
ment, the same being
personal to himself.
For the
accounting
--
..
years 1941-42 and 1942-43 _the appe.llant was assessed to
eXC~ss Q_am.n Sh1'jfi TyabJt
profits tax, but he contended that the Trustees of the Industnal
Commissi~ner,
Trust Fund were the managing agents as also the selling agents Excess Profits Tnx,
of the two mills, that the Trustees employed him on certain terms
l{_rderabad
and gave him certain powers, and that he was not carrying on an
independent business of his own but was just carrying out the
duties of an employee
of the Trustees.
He claimed that his
.remuneration under the agreement dated December 6, 1938, was
merely salary and not income derived
from business and therefore not liable to excess profits tax:
Held, (1) that under the agreements of 1934 the Trustees as
agents had express authority to name the appellant to act for the
principal in the business of agency and that therefore the appellant was neither a servant nor a mere sub-agent, but an agent of
the principal for such
part of the business
of agency as was
entrusted to him, within the meaning of s. 194 of th.: Indian Contract Act, 1872 .
(2) that on the true
construction of the
agreement dated
December 6, 1938, the appellant was undertaking
a business of
his own in accepting the duties and responsibilities of a managing
agent of the two mills under the general control of the Trustees,
and that, therefore, the income derived by him as remuneration
and commission was liable to excess profits tax.
Lakshminarayan Ram Gopal and Son Ltd. v. The Government
of Hyderabad, [19551 1 S.C.R. 393 and J. K. Trust, Bombay v. The
Commissioner of Income-tax/ Exce.s Profits Tax, Bombay, [1958]
S.C.R. 65, relied on.
C1v1L
APPELLATE
JllRJSDJCT!ON:
Civil Appeals
Nos. 824 and 825 of 19.57.
Appeals by special leave from the judgment and
order dated April 10, 19.58, of the former Hyderabad
High Court in E.P.T. References Nos. 452/5 and 4.rJ8/5
of· l %8 F.
A. V. Viswnnatha Snstri, S. N. Andley, J. B. Dadachnnji, R11111eslrn•11r N nth and P. L. Vo

## Text

196U
J-Ialisi11gh .1.\lfg.
Co. Lid.
v.
Union of India
196U
April 18.
546
SUPRE.\1E COURT REPORTS
[1960]
ln our view, the impugned s. ~.'iFFF(I) indudiug
the proviso and the explanation thereto are not 1111constillltional as infringing· the freedom guaranteed by
Art. 19(l)(g) of the Constitution or as infringing Arts. 14
or 20 of the Constitution. On that. view, the petitions
fail and are dismissed "·ith costs.
There will univ be
one hearing fee.
'
Pe!.ilions dis111issed..
QAMAR SHAFFI TYABJI
v.
THE COi\li\JlSSlONER, EXCESS PROFITS TAX,
HYDERABAD
(S. K. DAs, J. L. KAPCR and 1\I. 1-lmAYATCLLMI, Jj.)
Excess Profits Tax-Managing Agency and Selling Agency
agreements-Construction-Delegation of Agency-Delegate, whether agent or employee-Remuneration and commission derived by
such delegate-Liability to tax-Indian Contract Act, 1872 (9 of
1872), s. 194.
By an order of the Ruler of the erstwhile State of Hyderabad
an institution was formed for the development of industries on
behalf of the Government, called the Industrial Trust Fund, to
be managed by a committee called Trustees.
In 1934 the Trustees
entered into agreements with two cotton mills situated in the
State by virtue of which they were appointed secretaries, treasurers and agents of the said mills.
They were gi ,·en the general
inanagement of the mills including the power to appoint employees and were also appointed selling agents of the mills.
By separate agreements the
Trustees were -given power to delegate to
other persons all or any
of the powers
under the agreements
subject to the approval of the Board of Directors of the respective
mills.
On December 6, 1938, the Truste~s entered into an agreement with the appellant whereby they delegated their powers in
his favour and appointed him as the managing agent of their
business as secretaries,
treasurers and
agents,
as also
selling
agent of the two mills, subject to their general control.
The appellant was to hold the office of managing agent and selling agent
for the remaining period of the original' managing agency and.
selling agency agreements.
The remuneration of the appellant for
the managing agency was fixed at Rs. 2,000 per month and a
commission of 21 per cent. out of the commission of 121- per cent.
per annum on the annual profits payable to the
Trustees.
For
the selling agency a separate commission was payable on the sale
of different kinds of goods.
Clause 9 of the agreement provided
. .
·:
-·
... -
)
3 S.C.R.
SUPREME COURT REPORTS
547 .
that the managing agent shall not assign the benefit of the agreeJ961J
ment, the same being
personal to himself.
For the
accounting
--
..
years 1941-42 and 1942-43 _the appe.llant was assessed to
eXC~ss Q_am.n Sh1'jfi TyabJt
profits tax, but he contended that the Trustees of the Industnal
Commissi~ner,
Trust Fund were the managing agents as also the selling agents Excess Profits Tnx,
of the two mills, that the Trustees employed him on certain terms
l{_rderabad
and gave him certain powers, and that he was not carrying on an
independent business of his own but was just carrying out the
duties of an employee
of the Trustees.
He claimed that his
.remuneration under the agreement dated December 6, 1938, was
merely salary and not income derived
from business and therefore not liable to excess profits tax:
Held, (1) that under the agreements of 1934 the Trustees as
agents had express authority to name the appellant to act for the
principal in the business of agency and that therefore the appellant was neither a servant nor a mere sub-agent, but an agent of
the principal for such
part of the business
of agency as was
entrusted to him, within the meaning of s. 194 of th.: Indian Contract Act, 1872 .
(2) that on the true
construction of the
agreement dated
December 6, 1938, the appellant was undertaking
a business of
his own in accepting the duties and responsibilities of a managing
agent of the two mills under the general control of the Trustees,
and that, therefore, the income derived by him as remuneration
and commission was liable to excess profits tax.
Lakshminarayan Ram Gopal and Son Ltd. v. The Government
of Hyderabad, [19551 1 S.C.R. 393 and J. K. Trust, Bombay v. The
Commissioner of Income-tax/ Exce.s Profits Tax, Bombay, [1958]
S.C.R. 65, relied on.
C1v1L
APPELLATE
JllRJSDJCT!ON:
Civil Appeals
Nos. 824 and 825 of 19.57.
Appeals by special leave from the judgment and
order dated April 10, 19.58, of the former Hyderabad
High Court in E.P.T. References Nos. 452/5 and 4.rJ8/5
of· l %8 F.
A. V. Viswnnatha Snstri, S. N. Andley, J. B. Dadachnnji, R11111eslrn•11r N nth and P. L. Vohrn,
for
the
appellant.
K. N. Raja go/Jal' Sastri an<l D. GujJt11, for the respondent.
1960. April .18. The Judgment of the Court was
delivered by
·
·
S. K. DAS, J.-These are two appeals with special
s. K. Das J.
leave from the ] udgment and Order of the High Court
of Hyderabad dated April l 0, 1958, in two references
under s. 48(3) of the Hyderabad Excess Profits Tax.
Act.
The question 1vhich the High Court answered
against the assessee ir1 the said references was-
/960
Qom ;r Sha/Ji Tyal~ji
v.
Com·11issio11er.
ExreH Profits Tux,
IJ.1de t!had
.'I. K. ])as ].
548
SUPRE.l\IE COURT REPORTS
[ 1960]
"'Yhether in Lhe circumstances of the
case,
the
officers of the Exec." Profits Tax Department were
right in treating the income of the assessee or the
lrnlustrial Trust Fune! as income from business."
The High Court answered the question in the affirmative. The point for decision before us is if the High
Court correctly ans11·cred the question.
The relevant: facts which led to the question and
ans"·er arc these. There were two cot.ton mills in the
State of Hyderabad (as it was then known)
called
Azamjahi mills ancl Osmanshahi mills.
They
were
public joint stock companies. By a Firman-e-Muharak
of l 929 issued by the then Ruler of the State was
formed an institution called the Industrial Trust Fund,
the purpose of which was
to help brgc and small
industries on behalf of the Government of the State.
The management of
the Trust was entrusted to a
Committee which consistecl of three members of the
Government. 11·ho \\'ere called Trustees.
By two agreements dated April 12, 1!!34, and July 27, 1 CJ34, made
between the Trustees of the one part and the two mills
of the other, the Trustees were appointed secretaries,
treasurers and agents of the said -mills.
Under these
agreements the Trustees were given the general conduct
and man::igemcnt of the business and affairs of the
mills and they were entitled to appoint employees and
were also entitled to delegate to other pet:sons all or
any of the powers, authorities, discretions, etc., under
the agreements subject to the approval of the Board
of Directors of the respective mills.
By two other
ag-reements also dated April 12, I 0J4, and July 27,
1934, the Trustees were appointed selling agents of
the mills.
By two agreements both dated October 16,
J 'l'.l8, 1\'h ich 11·ere supplemental t.u rhe selling agency
agree1nents inentionecl above, the Trustees 'verc given
power to clelegate all or any of their powers, authorities, etc., to other persons subject to the aJ?proval of
the Board of Directors of the respective mills.
Till
October, 1938, the Trustees exercised their powers and
performed their functions under the agreements aforesaid through an Advisory Board, and Quamar Shaff1
Tyabji, appellant before us, was appointed chairman
of the Advisory Board on a remuneration of Rs. l ,500
·-
. .
'.
3 S.C.R.
SUPREME COURT REPORTS
549
per month plus a certain commission.
Sometime in
1960
1'938 the Advisory Board was dissolved .. and on Decem- Qamar Shoffi Tynbji
her 6.·, 1938, an agreement was entered into between
c "·.
h
,
d
ll
Cl
I I
f h
ommrsszoner,
t. e 1 rustees an · the appe ant.
a use
. o t. e preExcess Profits Ta.•,
amble of this agreement recited.:
Hyderabad
"The said Trustees are desirous of delegating such of.
s. K. Das J.
the powers, authorities and discretions as sμch secretaries, treasurers
and agents as also as such selling
agents of the said two mills as aforesaid as are hereinafter mentioned to and appointing the said
Quamar
Shaffi Tyabjee as the managing agent of the business
of the said trustees as such secretaries and treasurers
and agents as also as such selling agents of the said
tlvo mills as aforesaid in and for
the matters and
purposes hereinafter mentioned."
The agreement then recited that the approval of
the Board of Directors of the two mills having been
obtained, the appellant was appointed managing agent
of the business of the Trustees as secretaries, treasurers
and agents and also as selling agents of the two mills.
Clause 2 of the agreement detailed the powers of the
appellant which were the same as those of the Trustees
to conduct and manage the business of the two mills,
subject however to the general control of the Trustees.
In other. words, the full powers of management and
of the selling agency in relation to both the mills were
dele~~ated to the appellant.
Clause 3 said inter alia
that the appellant would hold the office of managing
agent and selling agent for the remaining period of the
original managing agency and selling agency agreements.
The remuneration of the appellant fqr the
managing agency was fixed at Rs. 2,000 per month and
a commission of 2~ per cent. out of the commission of
12~ per cent. per annum on the annual profits p;tyable
to the Trustees, subject to the condition that Osman·
· shahi mills made an annual profit of
Rs.
1,50,000
and the Azamjahi mills made
an annual profit of
Rs. 2,00,000.
For the selling agency a separate commission was payable on the sale of different kinds of
goods subject again to the condition that the annual
profits of the two mills did not fall below a particular
figure.
Clause 6 of the
agreement related
to the
appointment and duties of a mill expert.
Clause
'/
8-6 SCI/ND/82
1960
Qnmar Slwffi Tyahji
v.
Commissioner,
Excess Profits Tax,
fi;•derabad
S. It. Das J.
550
SUPRElVIE COURT REPORTS
[1960]
provided for the termination of the agreement anrl
said that the :1g·reement shal! terminate on the rr•rnstces terminating: the earlier agrecn1cnl's in their favour,
provided however that in the
event
of
the
said
Trustees deciding to transfer the said respective agreements and the rights thereunder to any one they shall
in the first instance offer the same to the said managing agent on the same t.erms and conditions as may
have been offered to them and on the further term
that the managing· agent shall make arrangement to
the sorisfaction of the said Trustees for the payment
to them in cash or otherwise of the moneys they have
spent in purchasing· the managing agency rights of the
said nm mills as also the balance then due of the unsecured loans (i.e., other than first debenture ]o,m) they
have and may hereafter advance to the said two mills,
so that the said managing agent shall have the first refusal thereof in the manner aforesaid, provided always
that the said managing agent shall intimate to
the
said Trustees his acceptance of the said term 1rithin
six weeks of the communication to him of the said
offer and in the event of his omission to do so he shall
he deemed to have not accepted the same.
Clause 9
of the :igreement is also important.
It said:
"The managing agent shall not assign the benefit
of this agreement, the same being personal to himself."
CLrnscs 10 and 11 related to the eventuality of winding up of the mills and its effect Oil the appellant's
rights under the agreement.
L'nder the terms of the agreement dated December fi,
l !)38, the appellant conducted
the business
of the
mills, both as to management and selling.
lie was
assessed to excess profits tax for the two chargeable
accountrng periods 13.'i IF and l 3'i2F,
corresponding
to October I, 194 I, to September 30, l '142, and October 1, 1942, to September .~o. 1943, respectively. The
total income
assessed for J 30 IF was
Rs. 2,3/ ,45 I,
which included a sum of Rs. 2,l l ,230 representing the
appellant's managing ag·ency allowance
and commission.
The total income for l 352F was Rs. 4,'l0,027
which included
Rs.
1,45,77'i being the managing
agency commission and allowance of the appellant.
. -.
..
•
1
-, -.
~·.
..
3 S.C.R.
SUPREME COURT REPORTS
551
Before the Excess Profits Tax authorities the appel1!_60
lant contended that he was only an employee of the Qamar Sha.ffi Tyabji
Industrial Trust Fund and his remuneration under the
c:
".· .
ommzsszorter,
agreement dated December 6, 1938, was merely salary Excess Prafits Tax,
and not income derived from business and therefore
Hyderabad
not liable to excess profits tax.
The Excess Profits
s. K. Das J.
Tax authorities negatived this contention,
and
as
required by the High . Court
the
Commissioner
of
Income-tax, Hyderabad, referred the question of law
which we have set out at the beginning of this judgment to the High Court for decision.
On behalf of the appellant it has been submitted
that on a true construction of the relevant agreements
the Industrial Trust Fund was the managing agent as
also the selling agent of the two mills;
the Trustees
employed the appellant on certain terms and gave him
certain powers, and therefore the appellant, an individual and not a firm, was not carrying on an independent business of his own; he was just carrying out the
duties of an employee of the Trustees in spite of his
being described as managing agent in the agreement of
December 6, 1938.
His income, therefore, was not
income derived from business.
\Ve are unable to accept this line of argument' as
correct. In Lahshminarayan Ram Gopal and Son Ltd.
v. The Government of Hyderabad (1) this Court had
occasion to explain the position of an agent, a servant
and an independent contractor. It was there pointed
out that the difference between the relations of master
a:ncl servant and of principal and agent lay in this:
a principal has the right to direct what work
the
agent has to do; but a master has the further right
to direct how the work is to be done. An agent has to
be distinguished on the one hand from
a
servant
and on the other from an independent contractor.
A
servant acts under the direct control and supervision
of his master, and is bound to conform to all reasonable orders given in the course of his work. An agent
though bound to exercise his authority in accordance
with all lawful instructions which may be given
to
him from time to time by his principal, is not subject
in its exercise to the direct control or supervision of
the principal.
Indeed, learned counsel for the appel-
(1) [1955] I S.C.R. 393.
552
SUPREME COURT REPORTS
[1960]
1960
Qpmar Shaffi T;·abji
v.
C:ommissioner,
Excess Profits Tax,
Hyderabad
!ant accepts as correct. the distinction made above aml
also accepts that the true relation between the Mills
and the Trustees was that of principal and agent; but
he contends that as between
the Trustees and the
appellant the relation was one of master
and
serS. K. Das].
vant.
'We consider that this contention is wholly unsound.
'~'e have examined the original
agreement
between the Mills and the
Trustees elated April 12,
1934.
Clause 9 of that agreement
said that
"the
agents may regulate and conduct their proceeding> in
such manner as they may from time to time determine
and may delegate all or any of their powers, authorities and discretions as secretaries, treasurers and agents
of the company lo
such person or persons and on
such terms and conditions as they may think fit:, subject to the approval of the Board of Directors of the
company." The delegation in favour of the appellant
was made under this clause.
The position was therefore this: the Trustees as agents had express authority
to name another person to act for the principal in the
business of the agency, and they named the appellant
with the approval of the Board of Directors.
Therefore, the appellant, was neither a servant nor a mere
sub-agent.
He was an agent of the principal for such
part of the business of the agency as was
entrusted
to him.
The position in law
was
as
laid down in
s. 194 of the Indian Contract Act.
In similar circumstances this Court has held that
managing agency is business
(sec
L11/ishminamyan
Rarn Gof1al and Son Ltd. v. The Gover11111ent of flyderabad (') and]. K. Trmt, Bombay v. The Commissioner
of Income-tax Excess Profis Tax, Bombay (').
A consideration of the terms of the agreement of December 6, 1938, also leaves no mctnner of doubt in the
matter.
Full powers of the
Trustees as managing
agents were delegated to the appellant under cl. 2 of
the agreement, subject only to the general control of
the Trustees and the clause stated that the appellant
was to conduct and manage the business and affairs of
the two mills.
Clause 3 relating to the tenure of the
managing agency, cl. 4 rebting to remuneration, cl. 7
relating to tcrmiintion of business
and
i-he
clauses
(1) [1955] 1 S.C.R. 393.
(2) [1958] S.C.R, G5.
' -
...
. .
3 S.C.R.
SUPREME COURT REPORTS
553
relating to the eventuality of winding up of the mills
-all these were appropriate to a business undertaking
only and quite inappropriate to a relation of master
and servant. The extent of the delegation of powers
was also indicated by cl. 5 which said inter alia
that
the managing agent (meaning the appellant) must
observe and perform all the terms and conditions of
the earlier managing agency and selling agency agreements .in favour and on the part of the Trustees; in
other words, the entire managing agency business was
handed over to the appellant.
Learned counsel
for
the appellant emphasised cl. 9 which we had quoted
e;ulier and said that it showed that the appellant could
not assign any of the benefits under the
agreement,
which was personal to himself. vVe do not think that
cl. 9 changed the quality of the relation between the
Trustees and the appellant.
The managing
agency
agreement must be read as a whole, and so read the
conclusion which clearly emerges is that the appellant
was undertaking a business of his own in accepting
the duties and responsibilities of a
managing agent
of the two mills under the general control of the
Trustees. The appellant was a man
with
previous
business experience and held an agency of the Eastern
Federal Union Insurance Co., which broqght
him a
substantial income.
Learned counsel. for the , appellant has relied on the decision in lnderchand Bari
Ram v. Commissioner of Income-tax, U.P. & C.P. ('),
where the distinction between the definitions of managing agent and m<inager under the Indian Companies
Act, 1913, was pointed out.
'\,Ye do not think
that
that decision gives any help to the appellant.
The
question reallY
is one
of construction of
the relevant agreements: what do their terms show-a relation of master and servant or an agency
business?
vVe have no doubt in our minds that what clearly
emerges from the terms of the agreement of December 6, 1938, is a business of managing agency accepted
and undertaken by the appellant.
'
Therefore, the High Court correctly answered the
question in the affirmative.
The appeals fail and are
dismissed with costs. As the appeals have beei1 heard
together, there will be one set of costs.
A pf;eals dismissed.
(I) [1952] 22 LT. R. 108.
1960
Qamar Shaffi Tyabji
v.
Commissiotur,
Excess Profits Tax,
HJ'derabad
S. K. Das J.