Managing Agency Income treated as business profits, not salaries, where firm manages under partnership agreement.

Whether receipts of a firm from acting as managing agent and sole selling agent are taxable as salaries or business profits: the analysis applies the statutory distinction between a managing agent and a servant, examines the partnership deed and articles showing the firm was constituted under the Partnership Act to obtain and exercise the managing agency, and relies on factual findings that no contractual employment relationship existed. The legal effect stated is that when a firm is formed to carry on managing agency activities and continues to manage the company, those receipts constitute profits and gains of business under Section 10 rather than salaries under Section 7.

---

---

Issues: (i) Whether the income derived by the assessee-firm as managing agent and as sole selling agent of Shankar Sugar Mills Ltd. is assessable as salaries under Section 7 of the Income-tax Act, 1922, or as profits and gains of business under Section 10 of the Income-tax Act, 1922.

Analysis: The Court examined (a) statutory definitions and distinctions between a managing agent and a servant or manager under the Indian Companies Act; (b) the nature and terms of the partnership deed and the articles of association showing the firm was constituted under the Indian Partnership Act, 1932, to float the company and secure and exercise the managing agency; (c) authorities on when remuneration for management services constitutes salary as opposed to business profits; and (d) factual findings of the Tribunal that the firm acted pursuant to an agreement as managing agents and that no contractual employment relationship making the firm servants of the company was shown. The Court held that a managing agent may be a servant or an independent agent depending on the agreement, but where a firm is constituted under the Partnership Act for the purpose of obtaining and exercising a managing agency and continues to manage the company's affairs, that activity is the business of the firm and its receipts are profits of business within Section 10. The same reasoning applies to the sole selling agency receipts.

Conclusion: The income received by the assessee-firm as managing agent and as sole selling agent of Shankar Sugar Mills Ltd. is assessable as profits and gains of business under Section 10 of the Income-tax Act, 1922, and not as salaries under Section 7 of the Income-tax Act, 1922.

---