Managing agency receipts as business income where no master-servant relationship exists and the arrangement is a profit-making agency.

A managing agent is not a servant of the company merely by virtue of that status; the decisive test is whether the agreement and surrounding facts create a contract of service or an agency carried on as business. Where a firm is constituted to float a company, secure its managing agency, and continue the activity for profit, the receipts are business income if no master-servant relationship is shown. The same principle applies to sole agency where no contract of employment exists. The article concludes that both managing agency and sole agency receipts were assessable as business income under section 10, not as salary under section 7, of the Indian Income-tax Act.

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Issues: Whether the remuneration and commission earned by the assessee-firm as managing agents and sole agents of a company were assessable as salary under section 7 of the Indian Income-tax Act or as business income under section 10.

Analysis: A managing agent is not, by that position alone, a servant of the company. The decisive question is whether the agreement and surrounding facts create a contractual relationship of master and servant or whether the arrangement is an agency carried on as business. The firm here was constituted under the Partnership Act for the business of floating the company, securing its managing agency, and carrying on that activity for profit. The managing agency was not shown to be an employment relationship, and the sole agency likewise disclosed no contract of service. The work was continued after the company was floated, showing continuity, and even a single commercial adventure may amount to business when it is undertaken as a profit-making venture.

Conclusion: The receipts from both managing agency and sole agency were income from business and were rightly assessed under section 10, not under section 7, of the Indian Income-tax Act.

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