# Harishankar Bagla and Another v. The State of Madhya Pradesh. Mehr Chand

- **Citation:** [1955] 1 S.C.R. 393
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** CIVIL APPEALS Nos. 292 and 312 of 1950
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/harishankar-bagla-and-another-v-the-state-of-madhya-pradesh-mehr-chand-395
- **Pages:** 16

## Headnote

•
S.C.R.
SUPREME COURT REPORTS
393
The result therefore is that in our opinion the provisions of sections 3, 4 and 6 of the Essential Supplies
(Temporary Powers)
Act,
1946, are constitutional and
the impugned order is also constitutional. Accordingly
this appeal is dismissed, and the trial Court is directed
to proceed expeditiously with the
ca~e in accordance
with law .
Appeal di.fmissed.
LAKSHMINARAYAN RAM GOPAL
AND SON LTD.
tJ.
THE GOVERNMENT OF HYDERABAD.
[S. R. DAS, BHAGWATI and
JAGANNADHADAS n.·1
Master and Servant-Principal and Agent-Distinction between
-! fyderabad
Excess
Profits
Tax
Regulation-Activities
tt•hicl1
constitute business-Remuneration which constitutes income, profits
<Jr gains from business.
The difference
between the relations
of master and
servant
and of principal and agent may be said to be 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 Jone.
The
pos1t10ns
of
an
agent,
a
servant
and
independent
.contractor are distinguished as under :
An agent is to be distinguished on the one hwd 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 to him in the
course of
'bis work ; an independent contractor, on the other hand, is entirely
-independent of any control
or interference and merely undertakes
to produce a specified result, employing his own means to produce
that result.
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. An agent, as
such is not a servant, but a servant is generally for some purposes
his master's implied
agent,
the extent of the
agency
depending
upon the duties or position of the servant.
Held, that
the
position of the appellants in the light of the
principles stated above and the terms of the Agency Agreement was
that of the agents of the Dewan Bahadur Ram Gopal Mills Ltd.,
and they carried on the general management of the business of the
.company subject to the control and supervision of the
Directors .
. SI
1954
Harishankar
Bagla and Another
v.
The State of
Madhya Pradesh.
Mehr Chand
Mahajan C. J.
1954
April t.
1954
lakshminarayan
Ram Gopal and
Son l.Jd.
v.
The Government of
Hyderabad.
394
SUPREME COURT REPORTS
[1955]
The
control and
supervision
of the
Directors
was, however, 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 ho\V
that work of general management was to be·
done both in regard to the method and the manner oJ such work
and therefore the circun~stances of
the
case
together with
the
power of sub-delegation reserved
under the Articles of Association
established beyond doubt that the appellants
were the
agents of
the company and not merely the
servants of the company
remu~
nerated by wages or salary.
Held further, that
various factors
along
'vith
the
fixity of
tenure, the nature of ren1uneration and the assignability
of their
right<> \Vere sufficient to prove
that the activities of the appellants
as
the
agents
of the company
constituted a business
and
the
remuneration which the appellants received from the company under
the terms of the
Agency Agreement \Vas income,
profits or gains.
fro1n business and the appellants \Vere rightly
assessed under
the
provisions of Hyderabad Excess Profits Tax Regulation.
CIVIL
APPELLATE
JURISDICTION:
CIVIL
APPEALS
Nos. 292 and 312 of 1950.
Appeals from
the Judgment and Order of the
High Court of Judicature at Hyderabad (Ansari, Qamar
Hasan and Manohar Pershad JJ.) in Cases Nos. 180-181
of 1954 F.
Ved Vyas, (S. K. Kapur and Ganpat Rai, with him)
for the appellant.
M. C. Setalvad, Attorney-General for India (Poru>
A. Mehta, with him) fo

## Text

•
S.C.R.
SUPREME COURT REPORTS
393
The result therefore is that in our opinion the provisions of sections 3, 4 and 6 of the Essential Supplies
(Temporary Powers)
Act,
1946, are constitutional and
the impugned order is also constitutional. Accordingly
this appeal is dismissed, and the trial Court is directed
to proceed expeditiously with the
ca~e in accordance
with law .
Appeal di.fmissed.
LAKSHMINARAYAN RAM GOPAL
AND SON LTD.
tJ.
THE GOVERNMENT OF HYDERABAD.
[S. R. DAS, BHAGWATI and
JAGANNADHADAS n.·1
Master and Servant-Principal and Agent-Distinction between
-! fyderabad
Excess
Profits
Tax
Regulation-Activities
tt•hicl1
constitute business-Remuneration which constitutes income, profits
<Jr gains from business.
The difference
between the relations
of master and
servant
and of principal and agent may be said to be 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 Jone.
The
pos1t10ns
of
an
agent,
a
servant
and
independent
.contractor are distinguished as under :
An agent is to be distinguished on the one hwd 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 to him in the
course of
'bis work ; an independent contractor, on the other hand, is entirely
-independent of any control
or interference and merely undertakes
to produce a specified result, employing his own means to produce
that result.
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. An agent, as
such is not a servant, but a servant is generally for some purposes
his master's implied
agent,
the extent of the
agency
depending
upon the duties or position of the servant.
Held, that
the
position of the appellants in the light of the
principles stated above and the terms of the Agency Agreement was
that of the agents of the Dewan Bahadur Ram Gopal Mills Ltd.,
and they carried on the general management of the business of the
.company subject to the control and supervision of the
Directors .
. SI
1954
Harishankar
Bagla and Another
v.
The State of
Madhya Pradesh.
Mehr Chand
Mahajan C. J.
1954
April t.
1954
lakshminarayan
Ram Gopal and
Son l.Jd.
v.
The Government of
Hyderabad.
394
SUPREME COURT REPORTS
[1955]
The
control and
supervision
of the
Directors
was, however, 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 ho\V
that work of general management was to be·
done both in regard to the method and the manner oJ such work
and therefore the circun~stances of
the
case
together with
the
power of sub-delegation reserved
under the Articles of Association
established beyond doubt that the appellants
were the
agents of
the company and not merely the
servants of the company
remu~
nerated by wages or salary.
Held further, that
various factors
along
'vith
the
fixity of
tenure, the nature of ren1uneration and the assignability
of their
right<> \Vere sufficient to prove
that the activities of the appellants
as
the
agents
of the company
constituted a business
and
the
remuneration which the appellants received from the company under
the terms of the
Agency Agreement \Vas income,
profits or gains.
fro1n business and the appellants \Vere rightly
assessed under
the
provisions of Hyderabad Excess Profits Tax Regulation.
CIVIL
APPELLATE
JURISDICTION:
CIVIL
APPEALS
Nos. 292 and 312 of 1950.
Appeals from
the Judgment and Order of the
High Court of Judicature at Hyderabad (Ansari, Qamar
Hasan and Manohar Pershad JJ.) in Cases Nos. 180-181
of 1954 F.
Ved Vyas, (S. K. Kapur and Ganpat Rai, with him)
for the appellant.
M. C. Setalvad, Attorney-General for India (Poru>
A. Mehta, with him) for the respondent.
1954. April I. The Judgment of the Court was
delivered by
BHAGWATI
J.-These are two appeals from the
judgment and decision of the High Court of Judicature
at
Hyderabad answering certain questions
referred at
the instance of the appellants by the Commissioner of
Excess
Profits Tax, Hyderabad, and adjudging the
liability of the
appellants for
excess profits tax m
regard to the amounts received by them as remuneration from the Dewan Bahadur Ramgopal Mills Company Ltd. as its Agents.
The Mills Company was registered on the 14th
February, 1920, at Hyderabad in the then territories of
His Exalted Highness the Nizam. The appellants were
registered as a private limited company at
Bombay on
•
•
..
S.C.R.
SUPREME COURT REPORTS
395
the 1st March, 1920. On the 20th April, 1920, an Agency
agreement was entered into between the Mills Company
and the 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 accounting 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, 19'l4, the Excess
Profits Tax Officer made an order assessing the income
of the appellants for the accounting periods 1351 and
1352
Fasli at Rs. 8,957
and
Rs. 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 same. An application made by the appellants under section 48(2) for
statement of the case to the High Court was rejected
by the Commissioner and the appellants filed a petition
to the High Court under section 48(3) to compel the
Commissioner to state the case to the High Court. An
order was made by the High Court on this petition
directing the
Commissioner to state the case and
the
statement of the case was submitted by the Commissioner on the 26th February, 1946. Four questions
were referred by the Commissioner to the High Courts
as under:-
(1) Whether the Petitioner Company 1s a
partnership firm or a registered firm ?
-+.-
(2) Whether under the
terms
of the agreement
the petitioner is an employee of the Mills Company or
is carrying on business ?
7-87-S. C. India/ 59
1954
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
The Government of
Hyderabad.
Bhagwati].
Lakshminara;•an
•Ram Gopal and
•
Son Ltd.
'.
The Government of
Hyderabad.
Bhagwati J.
396
SUPREME COURT REPORTS
[1955]
(3) Whether the remuneration received from the
Mills
is on account of service or
is the remuneration
for business ?
( 4) Whether the principle of personal qualification
referred to in section 2, clause ( 4), of the Excess Profits
Regulation is applicable to the Petitioner Company ?
These questions were of considerable importance and
were referred for decision to the Full Bench of the
High Court. The Full Bench of the High Court delivered their judgment the majority deciding the questions
(2) and (3) which were the only questions considered
determinative of the reference against the appellants.
The appellants appealed to
the
Judicial Committee.
But before the Judicial Committee heard the appeals
there was a merger of the territories of Hyderabad with
India. The appeals finally came for hearing before the
Supreme Court Bench
at Hyderabad on the 12th
December, 1950, when an order was passed transferring
the appeals to this Court at Delhi. These appeals have
now .come for hearing and final disposal before us.
The qu~tions (I) and ( 4) which were referred by the
Commissioner to the High Court at Hyderabad have
not been seriously pressed before us.
Whether the
appellants are a partnership firm or a registered company the principle of exclusion of the income from the
category of business income by reason of its depending
wholly or mainly on the personal qualifications of the
assessee
would
not apply because the income could
not
be
said
to be
income
from
profession
and
neither a partnership firm
nor a registered company
as such could be said to be possessed of
any personal
qualifications in the matter of the acquisition 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
remunera-
;,..
tion whether it was wages or salary or income, profits
or gains from business.
-
S.C.R.
SUPREME COURT REPORTS
397
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
tor 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 m 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. Article 116 provided that the general
management of the business of the Company subject to
the control and supervision of the Directors, was to be
in the hands of the Agents of the Company, who were to
have the power and authority on behalf of the Company, subject to such control
and supervision, to enter
into all contracts and to do all other things usual,
necessary and
desirable m the management of the
affairs of the Company or m carrying out its objects
and were to have power to appoint and employ m or
for the purposes of the transaction and management of
the affairs and business of the Company, or otherwise
for the purposes thereof, and from time to time to
remove or suspend such managers, agents, clerks and
other employees as they thought proper with such
powers and duties and upon such terms as to duration
of
employment, remuneration
or otherwise
as
they
thought fit and were also to have powers to exercise
all rights and liberties reserved and granted to them by
the said agreement referred to in clause 6 of the Company's
Memorandum of
Association
incJuding the
rights and liberties contained in clause 4 of the agreement. Article 118 authorised the agents to sub-delegate
~l or any of the powers, authorities and discretions
for the time being vested in them, and in particular
1 954
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
The Government of
Hyderabad.
Bhagwatij.
I
----------------------------------
1954
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
The Government of
Hyderabad.
Bhagwali ].
398
SUPREME COURT REPORTS
[1955}
from time to time to provide by the appointment
of an attorney or attorneys, for the management and
transaction of the affairs of the Company in any specified locality, in such manner as they thought fit.
The Agency agreement which was executed in
pursuance of the appointment under Article 115 provided that the appellants and their assigns were to be
the Agents of the Company for a period of 30 years
from the date of registration of the Company and they
were to .continue to act as such agents until they of
their own will resigned. The remuneration of the
appellants as such Agents was to be a commission of
2! per cent on the amount of sale proceeds of all yarn
cloth and other produce of the Company (including
cotton grown) which commission was to be exclusive of
any remuneration or wages payable to the bankers,
solicitors, engineers, etc., who may be employed
by
the appellants for or on behalf of the Company or for
carrying on and conducting the business of the Company. The appellants were to be paid in addition all
expenses
and charges actually ·incurred by
them in
connection with the business of the Company and
supervision and management thereof and the appellants 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
of 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
superv1SJon
of
the
Directors, the said Lachminarayan 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 factories, 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
...
-
•
-
J
'
S.C.R.
SUPREME COURT REPORTS
399
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 present or future delivery, and to execute become
parties to and where necessary to cause to be registered all deeds, agreements, contracts, receipts and other
documents and to insure the property of the Company
for such purposes and to such extent and in such
manner as they may think proper ; and to institute,
conduct, defend, compromise, refer to arbitration and
abandon legal and other proceedings, claims and disputes
m
which the
Company is
concerned and to
appoint and employ discharge, re-employ or replace
engineers, managers, retain commission dealers, muccadums, brokers, clerks, mechanics, workmen and other
officers and servants with such powers and duties and
upon such terms as to duration of office remuneration
or otherwise as they may think fit ; and to draw, accept
endorse, negotiate and sell Bills of Exchange and
Hundies with or without security and to receive and
give receipts for all moneys payable to or to be received
by the company and to draw cheques against the
moneys of the company and generally to make all such
arrangements and do all such acts and things on behalf of the Company, its successors and assigns as may
be necessary or expedient and as are not specifically
reserved to be done by the Directors.
4. The said
Lachminar~yan
Ramgopal
&
Son
Ltd., shall be at liberty to deal with the Company by
way of sale to the Company of cotton all raw materials
and articles required for the purpose of the Company
and the pur.chase from the Company of yarn cloth and
all other articles manufactured by the Company and
otherwise, and to deal with any firm in which any of
the shareholders of the said Lachminarayan Ramgopal
& Son Ltd., may be
directly
or indirectly
concerned
provided always such dealings are sanctioned passed
or ratified by the Board of Directors either before or
after such dealings.
Clause 8 provided that two of the members for the
time being of the appellants were at the option of the
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
The Government of
Hyderabad.
BhagwatiJ.
t954
Lakslsminarayan
Ram Gopal and
Son Ltd.
v.
The Gouernmtnt of
Hyderabad.
Bhagwati].
400
SUPREME COURT REPORTS
f1955J
appellants to be the ex-officio Directors of the Com ..
pany and clause 9 empowered the appellants to assign
the agreement and the rights of the appellants thereunder subject to the approval and sanction of the
Board to any person, firm or Company having authority by its constitution to become bound by the obligations undertaken by the appellants.
No materials other than these were placed by the
appellants
either before
the
Income-tax Authorities
or the High 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 re.ceive<l from the Company would
be income, profits or gains from business.
The distinction between a
thus
indicated
m
Powell's
page 16 :-
servant and an agent is
Law
of Agency,
at
(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 carry out his instructions.
( c) A servant is
under more
complete
control
than an agent,
and also at page 20 :-
(a) Generally, a servant
1s
a person who
not
only receives instructions from his master but is subject
to his master's right to control the manner in which he
carries out those instructions. An agent receives his
principal's instructions
but is
generally free
to
carry
out tl1osc
instructions accordi11g to J1is own discretion· ..
'
,.
-
0
-
-
....
S.C.R.
SUPREME COURT REPORTS
401
(b) Generally, a servant,
qua servant, has no
authority to make contracts on behalf of his master.
Generally, the purpose of employing an agent is to
authorise him to make contracts on behalf of his
principal.
(c) Generally, an agent is paid by commission
upon effecting the result which he has been instructed
by
his principal to achieve.
Generally,_ ~ servant is
paid by wages or salary.
The statement of the law contained in Halsbury's
Laws
of
England-Hailsham
Edition-Volume
22,
page 113, paragraph 192 may be referred to in this
connection :-
"The difference
between
the relations
of
master
and servant and of principal and agent may be said to
be 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."
The position is further clarified in Halsbury's Laws
of England-Hailsham Edition-Volume 1,
at page
193, article 345 where the positions of an agent, a
a
servant
and
independent
contractor
are
thus
distinguished :-
"An agent is 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 him in the course of his
work ; an independent contractor, on the other hand,
is entirely independent of any control or . interference
and merely undertakes to produce a specified result,
employing his own means to produce that result. 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. An agent, as such is not a
servant, but a servant is generally for
some
purposes
his master's implied . agent, the extent of the agency
depending upon the duties or position of the servant."
Considering the position of the appellants in t}i.e light
of the above principles it is no doubt true that the
1954
Lakshminarayan
Ram Gof:al and
Son Ltd.
v.
The Governmen1 of
Hyderabad.
Bhagwati ].
•
1 954
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
The Government of
Hyderabad.
Bhagwati J.
402
SUPREME COURT REPORTS
(1955]
appellants were to act as the agents of the Company
and carry on the general 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
<lay to day management of the busines.s
of the Company as detailed in Article 116 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 into agreements and
contracts for
such purpose and to such extent and in such
manner as
they
thought proper. They had
the
power to appoint,
employ, discharge, re-employ or 'replace the officers
and servants of the Company with such powers and
duties and upon such terms as
to duration of office
remuneration or otherwise
as they
thought fit. They
had also the power generally to make all such arrangements and to do all such things and acts on behalf of
the Company, as might be necessary or expedient and
as
were not specifically
reserved to be done by
the
Directors. These powers did not spell a direct control
and supervision of the Directors as of a master over
his
servant but constituted the appellants the
agents
of the Company who were to exercise their authority
subject to the control and supervision of the
Directors
but were not . subject in such exercise to the direct
control or supervision of the principals. The
liberty
given to the appellants under clause 4 of the
Agency
-
:s.c.R.
SUPREME COURT REPORTS
403
Agreement to deal with the Company by way of sale
' :and purchase of .commodities therein mentioned also
did not spell a relation as between master and servant
<but empowered the appellants to deal with the Company as Principals in spite of the fact that under
clause 8 of the Agreement two of their members for the
time being were to be the ex-officio Directors
of
the
·Company. The power to assign the agreement and the
rights of the appellants thereunder reserved to them
under clause 9 of the Agency Agreement though subject
-to the approval and sanction of the Board was hardly
.a power which could be vested in a servant. There was
further the right to continue in employment as
the
-agents of the Company for a period of 30 year.s from
the date of the registration thereof and thereafter until
the appellants of their own will' resigned, which also
would be hardly consistent with the employment of the
-appellants
as
mere
servants
of the
Company.
The
remuneration by way of commission of 2! per cent. of
the amount of sale procee·ds of the produce of the
·Company savoured more of the remuneration given by
a principal to his agent in the carrying out of the
.general management of the business of the principals
:than of wages or salary which would not normally be
·on such a basis. All these circumstances together with
·the power of sub-delegation reserved under Article 118
in our opinicm go to establish that the appellants 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
1Company 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 remunera-
·tion 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
iindividuals
or
concerns.
They
would
constitute
1954
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
The Government of
Hyderabad.
Bhagwati J.
1954
Lakshminarayan
Ram Gopal and
Son lid.
v.
TM Governmtnt of
Hyderabad.
BhagwatiJ.
404
SUPREME COURT REPORTS
business in spite of tbeir being restricted to only oneindividual 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 activities of the appellants certainly did not
come within the inclusive definition of business which
is given in section 2 clause 4 of the Excess Profits Tax
Regulation,
Hyderabad.
Business is there
defined
to·
include any
trade,
commerce or manufacture or any
adventure in the nature of a trade, commerce or manufacture or any profession or vocation but not to include·
a profession carried <,ln by an individual or by
indivi-.
duals in partnership if the profits of the profession
depend wholly or mainly on his or their personal
qualifications unless such profession consists wholly or·
mainly in the making of contracts on behalf of other·
persons or
giving to other persons of advice of a
.commercial nature in connection with the making of
contracts. The work which the appellants did under
the terms of the Agency Agreement constituted neither
trade, commerce or manufacture or any adventure in·
the nature of trade, commerce or manufacture nor was
it a profession or vocation.
The activities which constitute carrying on business.
need
not necessarily
consist of activities
by way of
trade, .commerce or manufacture or acttv1ttes
in the·
exercise of a profession or vocation. They may even·
consist of rendeting services to others which services.
may be of a variegated character. The considerations·
which apply in the case of individuals in the matter of
determining whether the activities constitute a business
within the meaning of the inclusive definition thereof
set out above may not apply in the case of incorporated'
companies. Even though the activities if carried on by
individuals might constitute business in that sense they
might .not constitute such business when carried on by
incorporated companies an<l resort must be had to thegeneral position in law in order' to determine whether
tbe incorporated company was carrying on business SO•
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..
S.C.R.
SUPREME COURT REPORTS
405
~- as to constitute the income earned by it income, profits
or gains from business. Reference may be made in this
context to William Esp/en, Son and Swainston, Limited
v. Commissioners of Inland Revenue(1 ). In that case a
private limited company was
incorporated for carrying
on business as naval architects and consulting engineers.
Before the formation of the company, a partnership
->;;:
had existed for many years between three persons who,
on
incorporation, became
the sole
shareholders and
directors of the company. The partnership had 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 is 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 be an individual.
~ A company such
as
that could
only do
a naval
architect's work by sending a naval architect to its
customers to do what they wanted to be done and itwas held that the company was not carrying on a profession but was carrying on a trade or business in the
ordinary sense of the term.
When a partnership firm comes into existence it can
be predicated of it that it. carries on a business, because
..,
partnership according to section 4 of the Indian Partnership Act is the relation. between persons who have
(1) [1919) 2 K.B. 731.
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
The GovefntntnJ ofi
Hyderabad.
Bhagwati].
1954
Lakshminara.Jan
Ram Gopal and
Son Ltd.
..
"The Government of
Hyd"abo4.
Bhagwati J.
406
SUPREME COURT REPORTS
[1955]
agreed to share the profits of a business carried on by
all or any of them acting for all. (See lnderchand Hari
Rain v. Commissioner of Income-tax, U.P. & C.P.( 1 )). But
when a company is incorporated it may not necessarily
come into existence for the purpose of carrying on a
business. According to section 5 of the Indian Companies Act any seven or more persons (or, where the
company to be formed will be a private company, any
two or more persons) associated for any lawful purpose
may by subscribing their names to a memorandum of
association .......................... form an incorporate<l
company, and the lawful purpose for which the persons become associated might not necessarily be
the
carrying on of business.
\\Then a
company
is
incorporated for carrying out certain activities it would
be
relevant to enquire what are the objects for which it
has been
incorporated.
As
was
observed
by
Lord
Sterndale, M. R., in Commissioners of Inland Revenue
v. The Korean Syndicate Limited('):
"If you once get the individual and the company
spending exactly on the same basis, then there would
be no difference between them at all. But the fact
that the limited company comes into existence in a
different way is a matter to be considered. An individual comes into existence for
many purposes, or perhaps sometimes for none, whereas a limited company
comes into existence . for some particular purpose, and
if it comes into existence for the particular purpose of
.carrying out
a
transaction
by getting possession
of
concessions and turning them to account, then that is
a matter to be considered when you come to decide
whether doing that is carrying on a business or not."
Justice Rowlatt followed the above view of Lord
Stern<lale,- M. R., in Commissioners of Inland Revenue
v. Birmingham Theatre Royal Estate Co., Limited( 3 ) and
held that "when you are considering whether a certain
form of enterprise is carrying on business or not, it is
material to look and see whether it is a company that
is doing it." The objects of an incorporated company
as laid down in the Memorandum of Association are
(1) (1952) I.T.R. 108.
(2) (1921) 12 Tax C'..as. 181 at p. 202.
(3) (1923) 12 Tax Gas. 580 at p. 584.
-
-
-
S.C.R.
.SUPREME COURT REPORTS
,
407
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 l.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
1"c.
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 arnbit 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 Governments or Authorities or for any
bankers, manufacturers, merchants, shippers and otherg;
when they acted as agents of the Company which were
,_
manufacturers inter alia of cotton piece
goods
they-
• would be carrying on agency business within the mean-.
ing of this object. Apart however from this there is
the further fact that there was a continuity of opera-.
tions
which constituted the activities of the
appellants
in the general management of the Company a business.
The whole work of management which the appellants
did for the Company within the powers conferred upon
them under Article 116 of the Articles of Association
-,.
and clause 3 of the Agency Agreement consisted of
numerous and continuous operations and comprised of
various services which were rendered by the
appellants
as the agents of the Company. The appellants
were
also entitled though with the sanction or ratification
by the Board of Directors either before
or
after
the
dealings to enter into dealings with the Company by
way of sales and purchases of various commodities.
There was nothing in the Agency Agreement to prevent
~
the appellants from acting as the agents of other manufacturers,
Joint Stock Companies etc., and
the
appellants could have as well acted as the agents of other
Lakshminaraya.,.,
Ram Gopal and
Son Ltd.
v.
The Gouemm•nl oj
Hyderabad.
BhagwatiJ,
1954
Lakshminarayan
Ram Gopal and
Son Ltd.
v.
408 '
SUPREME COURT REPORTS
[1955]
·rhe Government of
Hyderabad.
concerns besides the Company. All these factors taken
mto consideration along with the fixity of tenure, the
nature of remuneration and the assignability of their
rights, are sufficient to enable us to come to the conclusion that
the
act1V1t1es
of the
appellants as
the
agents of the Company constituted
a business and the
remuneration which the appellants received from the
Company under the terms of the Agency Agreement
was mcome, profits or gain from business.
Bhagwati].
1954
.April 22.
The appellants were therefore rightly assessed for
excess profits tax
and these appeals must stand dismissed with costs.
Appeal dismissed.
WAZIRCHAND
v.
THE STATE OF HIMACHAL PRADESH.
(With connected Appeal)
[MEHR CHAND MAHAJAN c.r., MuKHERTEA, VIvIAN
BosE, BHAGWATI and VENKATARAMA AYY.AR JJ.]
Constitution of India, articles 19, 31, 370-Code of Cri'niinal
-"!'
Procedure (Act V of 1898) ss. 51, 96, 98, 165, 523-Whether seizure
"
·of property not sanctioned by ss. 51, 96, 98 and 165 of the Code
.infringes fundamental rights under Arts. 19 and 31 of the Constitu~
:tion-Effect of dismissal of application under s. 523 of the Code in
such a case-Effect of Art. 370.
The provisions
regarding search
and
seizure by the Indian
police are contained in sections 51, 96, 98 and 165 of the Code of
Criminal
Procedure,
1898.
None of
these
sections had
any
-application to the facts and circu1nstances of the case.
Any seizure by the Indian police
of any property of a citizen
not sanctioned under the law stated above or under any other law
infringes the fundamental
rights of the
citizen guaranteed under
Art. 19 and Art. 31 of the Constitution of India. This position is
not affected even if the citizen \vhose
goods are so seized files an
application under s. 523 of the Code and his application is dismiss~
ed by the Magistrate.
In view of the provisions of Art. 370 it is doubtful if an offence
committed in Jammu and Kashmir could
be
investigated by the
police in India.
CML
APPELLATE
JURISDICTION:
Civil
Appeals
Nos. 129 and 130 of 1952.
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