1960 (4) TMI 4 - SC - Income Tax

Employment Control Determines Salary Character; remuneration held salary of the individual and not includible in joint family income.

The question whether treasurer emoluments are salary or business receipts is answered by applying the control/integration test: having regard to the ... Salary vs profits and gains of business - master and servant versus independent contractor - due control and supervision test - assessment of income of a Hindu undivided family - risk or detriment to family property - assessable as salary under section 7Salary vs profits and gains of business - master and servant versus independent contractor - due control and supervision test - assessable as salary under section 7 - Emoluments received by Sheel Chandra as treasurer were salary and not profits and gains of business. - HELD THAT: - The Court examined the written agreement and the totality of duties, obligations and control exercised by the bank. Although the contract contained some atypical clauses (indemnity for staff, supply of staff, arbitration, termination on notice), the nature of treasurership and the practical arrangements showed integration of the treasurer into the bank's business. Applying the test of whether there was due control and supervision by the employer, and considering the bank's power to direct entries, require dismissal or approve staff, and the treasurer's responsibilities peculiar to an employed treasurer, the Court held that the relationship was that of master and servant rather than an independent contractor. Consequently the emoluments fell to be assessed as salary and not as business profits.Emoluments are salary (not business profits) and thus assessable as salary.Assessment of income of a Hindu undivided family - risk or detriment to family property - The salary of Sheel Chandra is the individual income of Sheel Chandra and not partible income of the Hindu undivided family. - HELD THAT: - The Court considered whether lodging joint family property as security rendered the treasurer's earnings family income by reason of risk or detriment to the family estate. The Court distinguished authorities where family funds had been expended to equip a member for a profession and held that mere furnishing of security from family assets for a post of trust did not amount to detriment or risk in the sense required to make earnings partible. There was no evidence of family outlay to procure the appointment or of detriment to family property within the relevant authorities. Given that the emoluments were salary payable to the individual and acquired by personal fitness and employment, they were held to be the individual's income and not the income of the Hindu undivided family.Salary is assessable to the individual treasurer and not to the Hindu undivided family.Final Conclusion: Both questions referred by the Tribunal were answered in favour of the appellant: the treasurer's emoluments are salary (not business profits) and are the individual income of Sheel Chandra, not income of the Hindu undivided family; the High Court's contrary decision is set aside and the appeal is allowed. Issues: (i) Whether the emoluments received by Sheel Chandra as treasurer of the Central Bank of India are assessable as salary or as profits and gains of business; (ii) Whether those emoluments are assessable as part of the income of the Hindu undivided family of which he is karta.Issue (i): Whether the emoluments received by Sheel Chandra as treasurer are salary or business profits.Analysis: The Court examined the written agreement between the treasurer and the bank, the duties and obligations imposed on the treasurer, the bank's control and supervision over the treasurer and the cash department staff, the treasurer's responsibility for fidelity and for losses, and comparable authorities concerning treasurers and similar employments. Applying the test of due control and supervision having regard to the nature of the work, and considering the agreement as a whole, the Court found the relationship to be one of master and servant rather than an independent contractor or agency supplying services as a business.Conclusion: The emoluments are in the nature of salary and are assessable as salary. (Conclusion in favour of the assessee on this issue.)Issue (ii): Whether the emoluments of the treasurer are part of the income of the Hindu undivided family.Analysis: The Court considered whether the earnings were acquired with detriment or risk to joint family property such as by family expenditure to qualify the member or by use of family funds that exposed the estate to risk. The Court held that mere lodging of joint family property as security for the treasurer's obligations did not amount to the kind of detriment or risk to family estate recognized in authorities that make earnings partible; there was no family expenditure to equip the member nor evidence of risk/detriment in the sense applied by precedent.Conclusion: The salary is the individual income of Sheel Chandra and not part of the income of the Hindu undivided family. (Conclusion in favour of the assessee on this issue.)Final Conclusion: Both referred questions are answered in favour of the appellant; the emoluments are taxable as the individual's salary under the salary head and are not includible in the joint family income.Ratio Decidendi: Where, having regard to the nature of the work, the employer exercises due control and supervision over the worker and the worker is integrated into the employer's business, the relationship is one of master and servant and remuneration is assessable as salary; mere furnishing of joint family property as security does not by itself make such remuneration partible as joint family income absent expenditure or detriment to the family estate.