QAMAR SHAFFI TYABJI vs. THE COI\LI\JLSSLONER, EXCESS PROFITS TAX, HYDERABAD

CIVIL APPEAL No. 324/1957Supreme Court[1960] 3 S.C.R. 54618 April 1960Bench: 2 JudgesAuthor: S.K. DAS, J.L. KAPUR8 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the assessee was neither a servant nor a mere sub-agent but an agent of the principal for the part of the business entrusted to him, within the meaning of Section 194 of the Indian Contract Act, 1872. The Court reasoned that the Trustees, as agents of the mills, had express authority to delegate their powers to the appellant, which they did with the approval of the mills' Board of Directors. The terms of the agreement dated December 6, 1938, indicated that the appellant was undertaking a business of his own. The extensive powers delegated, remuneration structure, and clauses relating to tenure, termination, and winding up were characteristic of a business undertaking, not a master-servant relationship. The Court relied on previous decisions in Lakshminarayan Ram Gopal and Son Ltd. v. The Government of Hyderabad and J. K. Trust, Bombay v. The Commissioner of Income-tax/Excess Profits Tax, Bombay. Therefore, the income derived by the appellant as remuneration and commission was liable to excess profits tax. The High Court's affirmative answer to the question was upheld.

What were the facts?

The assessee, Qamar Shaffi Tyabji, was appointed as the managing agent and selling agent for two cotton mills, Azamjahi Mills and Osmanshahi Mills, through agreements dated December 6, 1938. These appointments were made by the Trustees of the Industrial Trust Fund, who were themselves the secretaries, treasurers, and agents of the mills. The assessee was to receive a remuneration of Rs. 2,000 per month and a commission. For the accounting years 1941-42 and 1942-43, the assessee was assessed to excess profits tax. The assessee contended that he was merely an employee of the Trustees and his remuneration was salary, not income from business, and therefore not liable to excess profits tax. The High Court of Hyderabad answered the reference against the assessee, holding that the income was from business.

What were the issues?

1. Whether, in the circumstances of the case, the income of the assessee was income derived from business and therefore liable to excess profits tax, as held by the Excess Profits Tax Department and the High Court, or whether it was salary income not liable to such tax, as contended by the assessee. Assessee's Contentions: - The Trustees of the Industrial Trust Fund were the managing and selling agents of the mills. - The Trustees employed the appellant on certain terms and gave him certain powers. - The appellant was not carrying on an independent business but was merely carrying out the duties of an employee of the Trustees. - His remuneration was salary and not income derived from business, hence not liable to excess profits tax. Revenue's Contentions: - The revenue contended that the assessee's income was derived from business and thus liable to excess profits tax. This position was upheld by the High Court.

Which sections of the Income-tax Act were involved?

Section 194

AI-generated summary — verify with the full judgment below

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 1111- constillltional 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, whe- ther 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

The order continues below.

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