1952 (3) TMI 14 - HC - Companies Law

Court rules managing agent income as business profit under Indian Income-tax Act

The court held that the income derived by the assessee-firm as managing and sole agents of a company was rightly assessed under section 10 of the Indian ... Managing agent Issues Involved:1. Whether the income derived by the applicant-firm as managing and sole agents of Messrs. Shankar Sugar Mills, Limited, was rightly assessed under section 10 or whether the income is assessable under section 7 of the Indian Income-tax Act.Issue-Wise Detailed Analysis:1. Status of the Assessee-Firm as Managing Agents:The primary question was whether the assessee-firm, in working as managing agents of Messrs. Shankar Sugar Mills, Limited, was functioning as a servant earning salaries (assessable under section 7) or earning profits and gains of business, profession, or vocation (assessable under section 10). The definition of a managing agent under clause (9A) of sub-section (1) of section 2 of the Indian Companies Act was pivotal, indicating that a managing agent need not necessarily be a servant of the company. The agreement between the assessee and the company did not specify that the firm was a servant of the company. The Tribunal held that the partnership deed and the agreement indicated that the firm was not an officer or servant of the company in the strict sense.2. Nature of Business under the Indian Partnership Act:The assessee-firm was constituted under the Indian Partnership Act, which limits the purposes for which a firm can be brought into existence to business activities. The Tribunal emphasized that the firm was engaged in the business of managing agency as per the partnership deed, which stated the firm's purpose was to float and obtain the managing agency of the proposed Shankar Sugar Mills, Limited. The firm's continuous management of the company's affairs constituted a business activity, not an employment.3. Distinction Between Business and Employment:The court distinguished between the roles of a managing agent and a manager, noting that a managing agent occupies a position typically not that of a servant. The managing agent manages the company's affairs by virtue of a right acquired through an agreement, unlike a servant or manager who does not have such a right. The remuneration received by the managing agent for their work does not automatically classify them as a servant.4. Continuity of Business Activity:The court addressed the argument that the firm's activities lacked the continuity required to be considered a business. It was determined that the firm's role did not end with the floating of the Shankar Sugar Mills, Limited, but continued with the management of the company's affairs, signifying a continuous business activity. Additionally, even a single venture can constitute a business if it is intended to be an adventure in the nature of trade.5. Income from Sole Agency:The income earned by the assessee-firm as sole agents of Messrs. Shankar Sugar Mills, Limited, was also considered. The court found no evidence of a master-servant relationship in this capacity. The same rationale applied to the managing agency business was extended to the sole agency business, concluding that the income derived was from business activities.Conclusion:The court affirmed that the income derived by the assessee-firm as managing and sole agents of Messrs. Shankar Sugar Mills, Limited, was rightly assessed under section 10 of the Indian Income-tax Act as profits and gains of business, profession, or vocation. The Department was entitled to its costs, assessed at Rs. 300 in each case.