Case: Qamar Shaffi Tyabji Vs. Commissioner, Excess Profits Tax, Hyderabad

agent of the two mills; the Trustees employed the appellant on certain terms and gave him certain powers, and therefore the appellant, an individual and not a firm, was not carrying on an independent business of his own; he was just carrying out the duties of an employee of the Trustees in spite of his being described as managing agent in the agreement of December 6, 1938. His income, therefore, was not income derived from business.6. We are unable to accept this line of argument as correct. In Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad, 1955-1 SCR 393 : (AIR 1954 SC 364 ) this Court had occasion to explain the position of an agent, a servant and an independent contractor.It was there pointed out that the difference between the relations of master and servant and of principal and agent lay in this : a principal has the right to direct what work the agent has to do; but a master has the further right to direct how the work is to be done. An agent has to be distinguished on the one hand from a servant and on the other from an independent contractor. A servant acts under the direct control and supervision of his master and is bound to conform to all reasonable orders given in the course of his work. An agent though bound to exercise his authority in accordance with all lawful instructions which may be given to him from time to time by his principal, is not subject in its exercise to the direct control or supervision of the principal.Indeed, learned counsel for the appellant accepts as correct the distinction made above and also accepts that the true relation between the Mills and the Trustees was that of principal and agent; but he contends that as between the Trustees and the appellant the relation was one of master and servant.We consider that this contention is wholly unsound.We have examined the original agreement between the Mills and the Trustees dated April 12, 1934. Clause 9 of that agreement said that "the agents may regulate and conduct their proceedings in such manner as they may from time to time determine and may delegate all or any of their powers, authorities and discretions as secretaries, treasurers and agents of the company to such person or persons and on such terms and conditions as they may think fit, subject to the approval of the Board of Directors of the company."The delegation in favour of the appellant was made under this clause. The position was therefore this : the Trustees as agents had express authority to name another person to act for the principal in the business of the agency, and they named the appellant with the approval of the Board of Directors. Therefore, the appellant, was neither a servant nor a mere sub-agent. He was an agent of the principal for such part of the business of the agency as was entrusted to him. The position in law was as laid down in S. 194 of the Indian Contract Act.7. In similar circumstances this Court has held that managing agency is business (see 1955-1 SCR 393 : (AIR 1954 SC 364 ) and J. K. Trust, Bombay v. Commissioner of Income-tax Excess Profits Tax, Bombay, 1958 SCR 65 : ( (S) AIR 1957 SC 846 ) ). A consideration of the terms of the agreement of December 6, 1938, also leaves no manner of doubt in the matter. Full powers of the Trustees as managing agents were delegated to the appellant under Cl. (2) of the agreement, subject only to the general control of the Trustees and the clause stated that the appellant was to conduct and manage the business and affairs of the two mills. Clause (3) relating to the tenure of the managing agency, Cl. (4) relating to remuneration,Cl. (7) relating to termination of business and the clauses relating to the eventuality of winding up of the mills-all, these were appropriate to a business undertaking only and quite inappropriate to a relation of master and servant. The extent of the delegation of powers was also indicated by Cl. (5) which said inter alia that the managing agent (meaning the appellant) must observe and perform all the terms and conditions of the earlier managing agency and selling agency agreements in favour and on the part of the Trustees; in other words, the entire managing agency business was handed over to the appellant. Learned counsel for the appellant emphasised Cl. (9) which we had quoted earlier and said that it showed that the appellant could not assign any of the benefits under the agreement, which was personal to himself. We do not think that Cl. (9) changed the quality of the relation between the Trustees and the appellant. The managing agency agreement must be read as a whole, and so read the conclusion which clearly emerges is that the appellant was undertaking a business of his own in accepting the duties and responsibilities of managing agent of the two mills under the general control of the Trustees.The appellant was a man with previous business experience and held an agency of the Eastern Federal Union Insurance Co. which brought him a substantial income. Learned counsel for the appellant has relied on the decision in Inderchand Hari Ram v. Commissioner of Income-tax, U. P. and C. P., 1952-22 ITR 108 : (AIR 1952 All 706 ) (FB) where the distinction between the definitions of managing agent and manager under the Indian Companies Act, 1913, was pointed out. We do not think that decision gives any help to the appellant.The question really is one of construction of the relevant agreements; what do their terms show - a relation of master and servant or an agency business? We have no doubt in our minds that what clearly emerges from the terms of the agreement of December 6, 1938 is a business of managing agency accepted and undertaken by the appellant.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]5. On behalf of the appellant it has been submitted that on a true construction of the relevant agreements the Industrial Trust Fund was the managing agent as also the selling agent of the two mills; the Trustees employed the appellant on certain terms and gave him certain powers, and therefore the appellant, an individual and not a firm, was not carrying on an independent business of his own; he was just carrying out the duties of an employee of the Trustees in spite of his being described as managing agent in the agreement of December 6, 1938. His income, therefore, was not income derived from business.We are unable to accept this line of argument as correct.Clause 9 of that agreement said that "the agents may regulate and conduct their proceedings in such manner as they may from time to time determine and may delegate all or any of their powers, authorities and discretions as secretaries, treasurers and agents of the company to such person or persons and on such terms and conditions as they may think fit, subject to the approval of the Board of Directors of the company."The delegation in favour of the appellant was made under this clause. The position was therefore this : the Trustees as agents had express authority to name another person to act for the principal in the business of the agency, and they named the appellant with the approval of the Board of Directors. Therefore, the appellant, was neither a servant nor a mere sub-agent. He was an agent of the principal for such part of the business of the agency as was entrusted to him. The position in law was as laid down in S. 194 of the Indian Contract Act.