Managing agency receipts treated as business income where no master-servant relationship existed.

Income derived by a managing agent or sole agent depends on the real nature of the relationship, not the label attached to it. Where the firm was formed to float the company, secure its managing agency, and continue that work as a business activity, and the documents showed no contract of service or master-servant relationship, the receipts were treated as business income. The same approach applied to the sole agency activity. The distinction between the Partnership Act and the Income-tax Act did not alter the character of the receipts, because the activity was still in the nature of business or an adventure in the nature of business.

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Issues: Whether the income derived by the assessee-firm as managing agents and sole agents of the company was assessable as salary under Section 7 of the Income-tax Act or as business income under Section 10 of the Income-tax Act.

Analysis: A managing agent may either be a servant of the company or a mere agent acting under a contract; the character of the receipt depends on the real nature of the relationship. On the facts, the firm was constituted to float the company, obtain its managing agency, and thereafter carry on that agency as a continuing activity. The partnership deed, the articles of association, and the absence of any term creating a contract of service showed that the firm was not employed as a servant. The same reasoning applied to the sole agency business, which was also carried on without any master-servant relationship. The distinction between the definitions of business in the Partnership Act and the Income-tax Act did not assist the assessee, because the activity nevertheless amounted to business or an adventure in the nature of business.

Conclusion: The income from managing agency and sole agency was rightly assessed under Section 10 and not under Section 7 of the Income-tax Act.

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