Case: M/s. Piyare Lal Adishwar Lal Vs. Commissioner of Income Tax, Delhi

The appellant is the assessee - a Hindu undivided family - with Sheel Chandra as its Karta and the respondent is the Commissioner of Income-tax.2. The appeal relates to the assessment year 1951-52. The appellant, a Hindu undivided family, consisted of Sheel Chandra and his younger brother. Their father Adishwar Lal. upto his death on 16-4-1950, was the Treasurer of several branches of the Central Bank of India (which in the judgment will be referred to as the Bank). During his fathers lifetime Sheel Chandra was employed as an Overseer in the Bank on a salary of Rs. 400 a month. Sheel Chandra was appointed Treasurer of the Bank at Delhi and sixteen other branches of the Bank. As treasurer he furnished security to the Bank of certain properties of the Hindu undivided family, which consisted of title deeds of immovable properties in Chandni Chowk, Delhi and Government of India securities of the value of Rs. 75,000. The Hindu undivided family owns considerable property, its income from house property alone is Rs. 50,000 per annum and it owns stocks, shares and Government securities also of considerable value. As Treasurer, Sheel Chandra received in the year of account from the Bank a sum of Rs. 23,286 and the question for decision is whether this sum is the individual income of Sheel Chandra as salary or it is part of the income of the Hindu undivided family. The Income-tax Authorities held this sum to be the latter and taxed it as such. The Income-tax Appellate Tribunal in upholding this view held that on a proper construction of the written agreement between Sheel Chandra and the Bank, the emoluments received by the Treasurer were profits and gains of business and it further held that as the security furnished by Sheel Chandra came out of the joint family properties, the emoluments could not be said to have been earned without detriment to the family property and therefore were part of the income of the Hindu undivided family. At the instance of the appellant the Tribunal referred under S. 66(1) the following two questions to the High"Whether in the facts and circumstances of the case and on a true construction of the agreement between the Central Bank of India and Sheel Chandra the salary and other emoluments received by Sheel Chandra as Treasurer of the said Bank are assessable under the head salary or under the head Profits and gains of business".2. "Whether in the facts and circumstances of the case, Sheel Chandras emoluments as Treasurer of the Central Bank of India Ltd., were rightly assessed in the hands of the Hindu undivided family of which he is thequestions were answered against the appellant.3. On a consideration of the various clauses of the agreement between Sheel Chandra and the Bank, the High Court held that the relationship between them was not one of master and servant but that of an employer and independent contractor and therefore the emoluments receive by Sheel Chandra as Treasurer were not salary but profits and gains of business. As to the second question the High Court was of the opinion that the emoluments were the income of the Hindu undivided family because Sheel Chandra was not appointed Treasurer on account of any personal qualification but he was appointed because (a) his father was a Treasurer of the Bank before him and (b) he had furnished substantial security which was part of the property of the Hindu undivided family. Against this judgment and order the appellant has come in appeal to this Court.4. The nature of the employment of Sheel Chandra has to be gathered from the agreement dated. 19-9-1950, between him and the Bank. It shows that on his application for appointment as a Treasurer at Delhi and sixteen other branches of the Bank, the Bank appointed him Treasurer for those branches and he could, by mutual agreement, be appointed at other branches in the Punjab, U. P. and Rajasthan. The appointment took effect from April 16, 1950. Sheel Chandra undertook to perform the duties and be responsible as Treasurer of the various branches of the Bank and was required to engage and employ subordinate staff called the Cash Department Staff such as Head Cashiers, Cashiers, Potdars, Guaranteed Peons, Godown Keepers, Assistant Godown Keepers, Chowkidars and Clerks and other persons necessary for the efficient working of the said offices. He had the power to "control, dismiss and change" this Staff at his pleasure but he could not engage or transfer any member of the Staff except with the approval of the Bank and had to dismiss any such member if so required by the Managing Director of the Bank or Agent of the Office.5. The Treasurer and the Cash Department Staff were to do and be responsible for all work in connection with receipts and payments of monies and had to do such other work as was customarily done by cashiers and shroffs of Banks. The Treasurer was also responsible for the correctness and genuineness of all hundies and cheques bearing signatures and endorsements in vernacular and for genuineness of all signatures and writings in any language or character or any securities, voucher deeds, documents and writing which the Treasurer or the Cash Department Staff dealt with and in case of any loss or damage arising out of any forged signatures and endorsements on any document accepted or dealt with by the Cash Department Staff as correct and genuine, the Treasurer was responsible to make good the loss. He was also required, when asked by the Bank, to engage the necessary staff, to look after the goods pledged with the Bank and he was responsible for the good conduct of such staff. It was also his duty to make enquires and report upon the identity, credit and solvency of persons dealing with the Bank and was liable for any loss arising out of any wilful misrepresentation or negligence in the enquiry or report made by him or his representative in any matter arising in the course of employment. He or his representative were also required, when asked to give reliable information in regard to hundies business but he was not responsible for any damage or loss arising therefrom. He also undertook when required by the Officers of the Bank to value and give correct certificate in regard to the genuineness, fineness and weight of bullion and gold ornaments and other valuables pledged with the Bank. He was responsible for any loss to the Bank in case of any wilful misrepresentation or negligence in regard to this branch of his duty. He further undertook to supply to the Bank as many persons as were required at the various branches of the Bank which the Bank opened in future. He undertook responsibility for the same custody of the monies and ornaments and other valuables kept with or pledged with the Bank as also for the bills of exchange, promissory notes, hundies or other securities. Besides this he was required to satisfy the Agent or the manager of the branch that all the monies of the Bank and other valuable securities which had not been duly used and accounted for were intact and in their proper places.6. Sheel Chandra was paid a salary of Rs. 1,750 per mensem for all the branches he was employed in. Besides this he was paid certain sums of money for guaranteeing the conduct of Godown Keepers, Assistant Godown Keepers, and Chowkidars supplied by him. If the branches or out-agencies were increased he was to receive such increase in salary as might mutually be agreed upon. On the closing of any branch there was to be a corresponding reduction in the remuneration. The members of the Cash Department Staff were to be paid Travelling allowance according to the rules of the Bank. In addition to the remuneration abovementioned the Treasurer or his authorised representative when visiting different branches were to get actual railway fare. The various members of the Cash Department Staff were to be paid their salary directly by the Bank but the Bank was not bound to pay more than the scale laid down by it. The permanent members of the Cash Department Staff were to get the usual increments and benefit of Provident Fund and Travelling allowance in accordance with the rules of the Bank. The Treasurer was required to engage members of the Cash Staff on salaries laid down by the Bank and if he paid anything more than the usual Bank scale he had to pay it himself. The Treasurer was also entitled to nominate and appoint a representative to carry on the duties undertaken by him at the various offices of the Bank but these appointments were subject to the approval of the Bank.7. The Treasurer was responsible for the acts of omission and commission and for neglect and default of his representatives and for each and every member of the Cash Department Staff. There are various clauses in the agreement requiring the Treasurer or his representative to perform their duties efficiently, honestly and in a proper manner. The Treasurer and the Cash Department Staff were under the control of the Bank. They were required to make entries in the books of account which were furnished by the Bank giving full particulars of all monies received and paid by them and in such manner as the Agent of the Bank might from time to time direct in witting. The Treasurer had to carry out his duties faithfully and any communication made by the Bank to any member of the Cash Department Staff was to be considered as a communication made to the Treasurer himself and he was bound to take notice of it. The agreement could be terminated by three calendar months notice in writing by either side but in the event of any breach of any condition of the agreement by the Treasurer his services could be terminated forthwith; but his liability was to continue. There was also an arbitration clause.

Court's reasoning:
It is true that as Treasurer, Sheel Chandra had also undertaken to indemnify the Bank not only for his own default but also for the default of the members of the Cash Department Staff. But Banks have to deal with monies, valuable securities gold and other valuables and must necessarily employ servants whose honesty is guaranteed and it is necessary for the Bank to have some one in its employment who can perform these duties in a responsible manner and be answerable to the Bank for negligence and default in the performance of this class of work. In the very nature of things one man cannot do all this work, not even at one branch, what to say of several branches; other people have therefore to be employed and although the persons employed in the Cash Department are servants of the Bank they do the work which Treasurers ordinarily and customarily do and consequently the treasurer is made responsible for any damage which the Bank suffers due to the default of the Treasurer or of those employed to do the work of the Cashthe Appellate Tribunal and the High Court were of the opinion that the emoluments as Treasurer were not acquired without detriment and risk to the family property and therefore formed part of the income of the Hindu undivided family. Treasurership is an employment of responsibility, trust and fidelity, and personal integrity and ability and mere ability to furnish a substantial security is not the sole or even the main reason for being appointed to such a responsible post in a Bank like the Central Bank of India. On the other hand his previous experience as an Overseer of the Bank and his being appointed on his applying for the post are indicative of personal fitness for it.In our opinion the judgment of the High Court was erroneous on both questions which were referred to it and they should both have been decided in favour of the appellant.18. The emoluments received by Sheel Chandra were in the nature of salary and therefore assessable under S. 7 of the Income-tax Act and not under S. 10 of the Act as profits and gains of business and the salary was the income of the individual i.e., Sheel Chandra and not the income of the Hindu undivided family.