•

S.C.R. SUPREME COURT REPORTS 393

The result therefore is that in our opinion the pro­

visions of sections 3, 4 and 6 of the Essential Supplies

(Temporary Powers) Act,

1946, are constitutional and

the impugned order is also constitutional. Accordingly

this appeal

is dismissed, and the trial Court is directed

to

proceed expeditiously with the ca~e in accordance

with law .

Appeal di.fmissed.

LAKSHMINARAYAN RAM GOPAL

AND SON LTD.

tJ.

THE GOVERNMENT OF HYDERABAD.

[S. R. DAS, BHAGWATI and JAGANNADHADAS n.·1

Master and Servant-Principal and Agent-Distinction between

-! fyderabad Excess Profits Tax Regulation-Activities tt•hicl1

constitute business-Remuneration which constitutes income, profits

<Jr gains from business.

The difference between the relations of master and servant

and of principal and agent may be said to be 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 Jone.

The pos1t10ns of an agent, a servant and independent

.contractor are distinguished

as under :

An agent is to

be distinguished on the one

hwd 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 to him in the course of

'bis work ; an independent contractor, on the other hand, is entirely

-independent of any control or interference and merely undertakes

to produce a specified result, employing his own means to produce

that result. 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. An agent, as

such is not

a servant, but a servant is generally for some purposes

his master's implied agent, the extent of the agency depending

upon the duties or position of the servant.

Held, that the position of the appellants in the light of the

principles stated above and the terms of the Agency Agreement was

that of the agents of the Dewan Bahadur Ram Gopal Mills Ltd.,

and they carried on the general management of the business of the

.company subject to the control and supervision of the Directors .

. SI

1954

Harishankar

Bagla and Another

v.

The State of

Madhya Pradesh.

Mehr Chand

Mahajan C. J.

1954

April t.

1954

lakshminarayan

Ram Gopal and

Son l.Jd.

v.

The Government of

Hyderabad.

394 SUPREME COURT REPORTS [1955]

The control and supervision of the Directors was, however, a:

general control and supervision and within the limits of their

authority the appellants as the agents of the company had perfect

discretion

as to

ho\V that work of general management was to be·

done both in regard to the method and the manner oJ such work

and therefore the circun~stances of the case together with the

power of sub-delegation reserved under the Articles of Association

established beyond

doubt that the appellants were the agents of

the company and not merely the servants of the company

remu~

nerated by wages or salary.

Held further, that various factors along 'vith the fixity of

tenure, the nature of ren1uneration and the assignability of their

right<> \Vere sufficient to prove that the activities of the appellants

as the agents of the company constituted a business and the

remuneration which the appellants received from the company under

the terms of the Agency Agreement \Vas income, profits or gains.

fro1n business and the appellants \Vere rightly assessed under the

provisions of Hyderabad Excess Profits Tax Regulation.

CIVIL APPELLATE JURISDICTION: CIVIL APPEALS

Nos. 292 and 312 of 1950.

Appeals from the Judgment and Order of the

High Court of Judicature at Hyderabad (Ansari, Qamar

Hasan and Manohar Pershad JJ.) in Cases Nos. 180-181

of 1954 F.

Ved Vyas, (S. K. Kapur and Ganpat Rai, with him)

for the appellant.

M. C. Setalvad, Attorney-General for India (Poru>

A. Mehta, with him) for the respondent.

1954. April I. The Judgment of the Court was

delivered by

BHAGWATI J.-These are two appeals from the

judgment and decision

of the High

Court of Judicature

at Hyderabad answering certain questions referred at

the instance

of the appellants by the Commissioner of

Excess

Profits Tax, Hyderabad, and adjudging the

liability

of the appellants for excess profits tax

m

regard to the amounts received by them as remunera­

tion from the Dewan Bahadur Ramgopal Mills Com­

pany Ltd. as its Agents.

The Mills Company was registered on the 14th

February, 1920, at Hyderabad in the then territories of

His Exalted Highness the Nizam.

The appellants were

registered

as a private limited company at Bombay on

•

•

..

S.C.R. SUPREME COURT REPORTS 395

the 1st March, 1920. On the 20th April, 1920, an Agency

agreement was entered into between the Mills Company

and the appellants appointing the appellants

its Agents

for a period of

30 years on certain terms and conditions

therein recorded. The appellants throughout worked

only

as the Agents of the Mills Company and for the

Fasli

years 1351 and 1352 they received their remu­

neration under the terms of the Agency agreement. A

notice

was issued under section 13 of the Hyderabad

Excess Profits Tax Regulation by the Excess

Profits

Tax Officer calling upon the appellants to pay the

amount of tax appertaining to these chargeable account­

ing periods.

The appellants submitted their accounts

and contended that the remuneration received by them

from the Mills Company

was not taxable on the ground

that

it is was not income, profits or gains from business

and

was outside the pale of the Excess Profits Tax

Regulation. This contention of the appellants was

negatived and on the 24th April,

19'l4, the Excess

Profits Tax Officer made an order assessing the income

of the appellants for the accounting periods

1351

and

1352 Fasli at Rs. 8,957 and Rs. 83,768 · respectively'

and assessed the tax accordingly. An appeal was taken

by the appellants to the Deputy Commissioner of

Excess Profits Tax who disallowed the same. An appli­

cation made

by the appellants under section 48(2) for

statement of the

case to the High Court was rejected

by the Commissioner and the appellants filed a petition

to the

High Court under section 48(3) to compel the

Commissioner to state the

case to the High Court. An

order was made by the High Court on this petition

directing the Commissioner

to state the case and the

statement of the

case was submitted by the Commis­

sioner on the 26th February,

1946. Four questions

were referred

by the Commissioner to the High Courts

as under:-

(1) Whether the Petitioner Company 1s a partner­

ship firm or a registered firm

?

-+.- (2) Whether under the terms of the agreement

the petitioner

is an employee of the Mills Company or

is carrying on business ? 7-87-S. C. India/ 59

1954

Lakshminarayan

Ram

Gopal and Son Ltd.

v.

The Government of

Hyderabad.

Bhagwati].

Lakshminara;•an

•Ram Gopal and

• Son Ltd.

'.

The Government of

Hyderabad.

Bhagwati J.

396 SUPREME COURT REPORTS [1955]

(3) Whether the remuneration received from the

Mills is on account of service or is the remuneration

for business

?

( 4) Whether the principle of personal qualification

referred

to in section 2, clause ( 4), of the Excess

Profits

Regulation is applicable to the Petitioner Company ?

These questions were of considerable importance and

were referred for decision to the Full Bench of the

High Court. The Full Bench of the High Court delive­

red their judgment the majority deciding the questions

(2) and (3) which were the only questions considered

determinative

of the reference against the appellants.

The appellants appealed to the Judicial Committee.

But before the Judicial Committee heard the appeals

there

was a merger of the territories of Hyderabad with

India. The appeals finally came for hearing before the

Supreme Court Bench at Hyderabad on the 12th

December,

1950, when an order was passed transferring

the appeals to this

Court at Delhi. These appeals have

now .come for hearing and final disposal before us.

The qu~tions (I) and ( 4) which were referred by the

Commissioner to the High Court at Hyderabad have

not been seriously pressed before

us. Whether the

appellants are a partnership firm or a registered com­

pany the principle

of exclusion of the income from the

category

of business income by reason of its depending

wholly or mainly on the personal qualifications of the

assessee would not apply because the income could

not

be said to be income from profession and

neither a partnership firm nor a registered company

as such could

be said to be possessed of any personal

qualifications in the matter of the acquisition of that

income.

The principal questions which were therefore argued

before the High Court at Hyderabad and before

us

were the questions (2) and (3) which involved the

determination of the position

of the appellants whether

they were servants or agents

of the Mills Company and

:..

•

the determination of the character of their remunera-;,..

tion whether it was wages or salary or income, profits

or gains from business.

-

S.C.R. SUPREME COURT REPORTS 397

The appellants were registered as a private limited

company having their registered

office in Bombay and

the objects for which they were incorporated were the

following:

(1) To act

as agents for Governments or Authori­

ties or

tor any bankers, manufacturers, merchants,

shippers, Joint Stock Companies and others and carry

'On all kinds of agency business.

(2) To carry on in India and elsewhere the trade

or business of merchants, importers exporters m all

their branches

etc. etc ........ .

Under Article 115 of the Articles of Association of the

Mills Company the appellants and their assigns were

appointed the agents

of the Company upon the terms,

provisions and conditions

set out in the Agreement

referred to in clause 6 of the Company's Memorandum

of Association. Article

116 provided that the general

management of the business

of the

Company subject to

the control and supervision

of the Directors, was to be

in the hands

of the Agents of the

Company, who were to

have the power and authority on behalf

of the

Com­

pany, subject to such control and supervision, to enter

into all contracts and to do all other things usual,

necessary and desirable m the management of the

affairs of the Company or m carrying out its objects

and were to have power to appoint and employ m or

for the purposes of the transaction and management of

the affairs and business of the

Company, or otherwise

for the purposes thereof, and from time to time to

remove or suspend such managers, agents, clerks and

other employees

as they thought proper with such

powers and duties and upon such terms

as to duration

of employment, remuneration or otherwise

as they

thought fit and were

also to have powers to exercise

all rights and liberties reserved and granted to them

by

the said agreement referred to in clause 6 of the Com­

pany's Memorandum of Association incJuding the

rights and liberties contained in clause 4 of the agree­

ment. Article

118 authorised the agents to sub-delegate

~l or any of the powers, authorities and discretions

for the time being vested in them, and in particular

1

954

Lakshminarayan

Ram Gopal and

Son Ltd.

v.

The Government of

Hyderabad.

Bhagwatij.

I

----------------------------------

1954

Lakshminarayan

Ram Gopal and

Son Ltd.

v.

The Government of

Hyderabad.

Bhagwali ].

398 SUPREME COURT REPORTS [1955}

from time to time to provide by the appointment

of an attorney or attorneys, for the management and

transaction of the affairs of the Company in any speci­

fied locality, in such manner as they thought fit.

The Agency agreement which

was executed in

pursuance

of the appointment under Article 115

pro­

vided that the appellants and their assigns were to be

the Agents of the Company for a period of 30 years

from the date

of registration of the Company and they

were to .continue

to act as such agents until they of

their own will resigned. The remuneration

of the

appellants

as such Agents was to be a commission of

2! per cent on the amount of sale proceeds of all yarn

cloth and other produce of the Company (including

cotton grown) which commission

was to be exclusive of

any remuneration or wages payable to the bankers,

solicitors, engineers, etc., who may be employed by

the appellants for or on behalf of the Company or for

carrying on and conducting the business of the Com­

pany. The appellants were to

be paid in addition all

expenses and charges actually

·incurred by them in

connection with the business

of the Company and

supervision and management thereof and the appel­

lants were entitled

to appoint any person or

persons in Bombay to act

as their Agents in Bombay

and any other places

in connection with the business

of the Company.

Clauses 3 and 4

of the agency agreement are

impor­

tant and may be set out in extenso :-

3. Subject to the control and superv1SJon of the

Directors, the said Lachminarayan Ramgopal and Son

Limited shall have the general conduct and manage­

ment of the business and affairs of the company and

shall have on behalf

of the company to acquire by

purchase lease or otherwise lands tenements and other

buildings and to erect maintain alter and extend factor­

ies, ware-houses, engine house and

other buildings in

Hyderabad and elsewhere in the territories of His

Exalted Highness the Nizam and

in India and to

purchase, pay for,

sell, resell, and repurchase

machi­

nery, engines, plant, raw cotton, waste, jute, wool and

...

-

•

-

J

'

S.C.R. SUPREME COURT REPORTS 399

other fibres and produce, stores and other materials

and to manufacture yarn cloth and other fabrics and

to sell the same either in the said territories

as well as

elsewhere in India and either on credit or for cash, or

for present or future delivery, and to execute become

parties to and where necessary to cause

to be register­

ed all deeds, agreements, contracts, receipts and other

documents and to insure the property of the

Company

for such purposes and to such extent and in such

manner

as they may think proper ; and to institute,

conduct, defend, compromise, refer to arbitration and

abandon legal and other proceedings,

claims and dispu­

tes m which the Company is concerned and to

appoint and employ discharge, re-employ or replace

engineers, managers, retain commission dealers, mucca­

dums, brokers, clerks, mechanics, workmen and other

officers and servants with such powers and duties and

upon such terms

as to duration of office remuneration

or otherwise

as they may think

fit ; and to draw, accept

endorse, negotiate and sell Bills of Exchange and

Hundies with or without security and to receive and

give receipts for all moneys payable to or to

be received

by the company and

to draw cheques against the

moneys of the company and generally to make all such

arrangements and do all such acts and things on

be­

half of the Company, its successors and assigns as may

be necessary or expedient and as are not specifically

reserved to

be done by the Directors.

4. The said

Lachminar~yan Ramgopal & Son

Ltd., shall

be at liberty to deal with the

Company by

way of sale to the Company of cotton all raw materials

and articles required for the purpose of the Company

and the pur.chase from the Company of yarn cloth and

all other articles manufactured by the Company and

otherwise, and to deal with any firm in which any of

the shareholders of the said Lachminarayan Ramgopal

& Son Ltd., may be directly or indirectly concerned

provided always such dealings are sanctioned passed

or ratified

by the Board of Directors either before or

after such dealings.

Clause 8 provided that two of the members for the

time being of the appellants were at the option of the

Lakshminarayan

Ram Gopal and

Son Ltd.

v.

The Government of

Hyderabad.

BhagwatiJ.

t954

Lakslsminarayan

Ram Gopal and

Son Ltd.

v.

The Gouernmtnt of

Hyderabad.

Bhagwati].

400 SUPREME COURT REPORTS f1955J

appellants to be the ex-officio Directors of the Com ..

pany and clause 9 empowered the appellants to assign

the agreement and the rights of the appellants there­

under subject to the approval and sanction of the

Board to any person, firm or Company having autho­

rity by its constitution to become bound by the obliga­

tions undertaken by the appellants.

No materials other than these were placed by the

appellants either before the Income-tax Authorities

or the

High Court and the questions that arise before

us have to be determined only on these materials. If

on the construction of these documents we arrive at

the conclusion that the position of the appellants was

not that of servants but the agents of the Company

the further question would have to

be determined

whether the activities of the appellants amounted

to

the carrying on of business. If they were not the

servants of the Company, the remuneration which they

received would certainly not

be wages or salary but if

they were agents of the Company the question would

still survive whether their activities amounted to

the

carrying on of business in which case only the

remu­

neration which they re.ceive<l from the Company would

be income, profits or gains from business.

The distinction between a

thus indicated m Powell's

page

16 :-

servant and an agent is

Law of Agency, at

(a) Generally a master can tell his servant what

to do and how to do it.

·

(b) Generally a principal cannot tell his agent how

to carry out his instructions.

( c) A servant

is under more complete control

than an agent,

and also at page

20 :-

(a) Generally, a servant 1s a person who not

only receives instructions from his master but is subject

to his master's right to control the manner in which

he

carries out those instructions. An agent receives his

principal's instructions but

is generally free to carry

out tl1osc instructions accordi11g to J1is own

discretion· ..

'

,.

-

0

-

-

....

S.C.R. SUPREME COURT REPORTS 401

(b) Generally, a servant, qua servant, has no

authority to make contracts on behalf of his master.

Generally, the purpose

of employing an agent is to

authorise him to make contracts on behalf

of his

principal.

(c) Generally, an agent

is paid by commission

upon effecting the result which he has been instructed

by his principal to achieve. Generally,_

~ servant is

paid by wages or salary.

The statement

of the law contained in Halsbury's

Laws

of England-Hailsham Edition-Volume 22,

page 113, paragraph 192 may be referred to in this

connection

:-

"The difference between the relations of master

and servant and of principal and agent may

be said to

be 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."

The position is further clarified in Halsbury's Laws

of

England-Hailsham Edition-Volume 1, at page

193, article 345 where the positions of an agent, a

a servant and independent contractor are thus

distinguished

:-

"An agent is 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 him in the course

of his

work ; an independent contractor, on the other hand,

is entirely independent of any control or . interference

and merely undertakes to produce a specified result,

employing his own means to produce that result. 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 supervi­

sion

of

the principal. An agent, as such is not a

servant, but a servant

is generally for some purposes

his master's implied . agent, the extent

of the agency

depending upon the duties or position of the servant."

Considering the position of the appellants in t}i.e light

of the above principles it

is no doubt true that the

1954

Lakshminarayan

Ram Gof:al and

Son Ltd.

v.

The Governmen

1 of

Hyderabad.

Bhagwati ].

•

1

954

Lakshminarayan

Ram Gopal and

Son Ltd.

v.

The Government of

Hyderabad.

Bhagwati J.

402 SUPREME COURT REPORTS (1955]

appellants were to act as the agents of the Company

and carry on

the general management of the business

of

the Company subject to the control and supervision

of the Directors.

That does not however mean that

they acted under

the direct control and supervision of

the Directors in regard to the manner or method of

their work. The Directors were entitled

to lay down

the general policy and

also to give such directions in

regard

to the management as may be considered neces­

sary. But the

<lay to day management of the busines.s

of the Company as detailed in Article 116 of the Articles

of Association and clause 3 of the Agency Agreement

above

set out was within the discretion of the appel­

lants and apart from directing what work the appel­

lants had to do

as the agents of the Company the

Directors had not

conferred upon them the further

right to direct how that work of the general manage­

ment was to

be done. The control and supervision of

the directors was a general control and supervision and

within the limits of their authority the appellants

as

the agents of the Company had perfect discretion as to

how that work of general management was to be done

both in regard to the method and the manner of such

work.

The appellants for instance had perfect latitude

to enter into agreements and contracts for such pur­

pose and to such extent and in such manner

as they

thought proper. They had the power to appoint,

employ, discharge, re-employ or 'replace the

officers

and servants of the Company with such powers and

duties and upon such terms

as to duration of office

remuneration or otherwise as they thought fit. They

had

also the power generally to make all such arrange­

ments and to do all such things and acts on behalf of

the Company,

as might be necessary or expedient and

as were not specifically reserved to be done by the

Directors. These

powers did not spell a direct control

and supervision of the Directors

as of a master over

his servant but constituted the appellants

the agents

of the Company who were to exercise their authority

subject to the control and supervision of

the Directors

but

were not

. subject in such exercise to the direct

control or supervision of

the principals. The liberty

given to

the appellants under clause 4 of the Agency

-

:s.c.R. SUPREME COURT REPORTS 403

Agreement to deal with the Company by way of sale

' :and purchase of .commodities therein mentioned also

did not spell a relation

as between

master and servant

<but empowered the appellants to deal with the Com­

pany as Principals in spite of the fact that under

clause 8 of the Agreement two of their members for the

time being were

to be the ex-officio Directors of the

·Company. The power

to assign the agreement and the

rights of the appellants thereunder reserved to them

under clause 9 of the Agency Agreement though subject

-to the approval and sanction of the Board was hardly

.a power which could be vested in a servant. There was

further the right to continue in employment

as the

-agents of the Company for a period of

30 year.s from

the date

of the registration thereof and thereafter until

the appellants of their own will' resigned, which

also

would be hardly consistent with the employment of the

-appellants

as mere servants of the Company. The

remuneration

by way of commission of

2! per cent. of

the amount of

sale

procee·ds of the produce of the

·Company savoured more of the remuneration given by

a principal to his agent in the carrying out of the

.general management of the business of the principals

:than of wages or salary which would not normally be

·on such a basis. All these circumstances together with

·the power of sub-delegation reserved under Article 118

in our opinicm go to establish that the appellants were

·the agents of the Company and not merely the servants

·of the Company remunerated by wages or salary.

Even though the position of the appellants qua the

1

Company was that of agents and not servants as stated

;above it remains to

be determined whether the work -which they did under the Agency Agreement amounted

to carrying on business

so as to constitute the

remunera­

·tion which they received thereunder income, profits or

gains from business. The contention which was urged

before

us that the appellants only worked as the agents

·of the Mills Company and no others and therefore what

they did did not constitute a business does not avail

the appellants. The activities in order to constitute a

business need not necessarily be concerned with several

iindividuals or concerns. They would constitute

1954

Lakshminarayan

Ram Gopal and

Son Ltd.

v.

The Government of

Hyderabad.

Bhagwati J.

1954

Lakshminarayan

Ram Gopal and

Son lid.

v.

TM Governmtnt of

Hyderabad.

BhagwatiJ.

404 SUPREME COURT REPORTS

business in spite of tbeir being restricted to only one­

individual or concern. What is relevant to consider is •

what is the nature and scope of these activities though

either

by chance or design these might be restricted

to·

only one individual or concern. It is the nature and

scope of these activities and not the extent of the

operations which are relevant for this purpose.

The activities of the appellants certainly did not

come within the inclusive definition of business which

is given in section 2 clause 4 of the Excess Profits Tax

Regulation, Hyderabad. Business is there defined

to·

include any trade, commerce or manufacture or any

adventure in the nature of a trade, commerce or manu­

facture or any profession or vocation but not to include·

a profession carried <,ln by an individual or by indivi-.

duals in partnership if the profits of the profession

depend wholly or mainly on his or their personal

qualifications unless such profession consists wholly or·

mainly in the making of contracts on behalf of other·

persons or giving to other persons of advice of a

.commercial nature in connection with the making

of

contracts. The work which the appellants did under

the terms of the Agency Agreement constituted neither

trade, commerce or manufacture or any adventure

in·

the nature of trade, commerce or manufacture nor was

it a profession or vocation.

The activities which constitute carrying on business.

need not necessarily consist of activities

by way

of

trade, .commerce or manufacture or acttv1ttes in the·

exercise of a profession or vocation. They may even·

consist of rendeting services to others which services.

may

be of a variegated character. The considerations·

which apply in the

case of individuals in the matter of

determining whether the activities constitute a business

within the meaning of the inclusive definition thereof

set out above

may not apply in the case of incorporated'

companies. Even though the activities

if carried on by

individuals might constitute business in that sense they

might .not constitute such business when carried on

by

incorporated companies an<l resort must be had to

the­

general position in law in order' to determine whether

tbe incorporated company was carrying on business SO•

-

-

..

S.C.R. SUPREME COURT REPORTS 405

~-as to constitute the income earned by it income, profits

or gains from business. Reference may

be made in this

context to William Esp/en,

Son and Swainston, Limited

v. Commissioners of Inland Revenue(1 ). In that case a

private limited company

was incorporated for carrying

on business

as naval architects and consulting engineers.

Before the formation of the company, a partnership

->;;: had existed for many years between three persons who,

on incorporation, became the

sole shareholders and

directors of the company. The partnership had carried

on the profession of naval architects and consulting

engineers and the work done

by the company was

identical in character with that formerly done by the

partnership which

is succeeded. The work done by the

company

was identical in all respects with the work of

,.,-a professional naval architect and· consulting engineer,

and was performed

by the said three shareholders and

directors

of the company personally. A question arose

whether the company

was carrying on a profession

within the meaning

of section 39 paragraph C of the

Finance (No. 2) Act,

1915. It was contended that it

carried on a profession of naval architects and consult­

ing engineers because the members composing it were

,_ three naval architects. That contention was however

' negatived and it was held that even though what was

to be looked at

was the character of the work done by

the company, it was not carrying on the profession of

the naval architects within the meaning of the section,

because for that purpose it

was of the essence of a

profession that the profits should

be dependent mainly

upon the personal qualifications

of the person by whom

it was carried on and that could only

be an individual.

~ A company such as that could only do a naval

architect's work

by sending a naval architect to its

customers to do what they wanted to

be done and

it­

was held that the company was not carrying on a profes­

sion but

was carrying on a trade or business in the

ordinary

sense of the term.

When a partnership firm

comes into existence it can

be predicated of it that it. carries on a business, because

.., partnership according to section 4 of the Indian Partner­

ship Act

is the relation. between persons who have

(1)

[1919) 2 K.B. 731.

Lakshminarayan

Ram Gopal and

Son Ltd.

v.

The GovefntntnJ ofi

Hyderabad.

Bhagwati].

1

954

Lakshminara.Jan

Ram Gopal and

Son Ltd.

..

"The Government of

Hyd"abo4.

Bhagwati J.

406 SUPREME COURT REPORTS [1955]

agreed to share the profits of a business carried on by

all or any of them acting for all. (See lnderchand Hari

Rain v. Commissioner of Income-tax, U.P. & C.P.(

1

)). But

when a company

is incorporated it may not necessarily

come into existence for the purpose of carrying on a

business. According to section

5 of the Indian Com­

panies Act any seven or more persons (or, where the

company to

be formed will be a private company, any

two or more persons) associated for any lawful purpose

may

by subscribing their names to a memorandum of

association

.......................... form an incorporate<l

company, and the lawful purpose for which the

per­

sons become associated might not necessarily be the

carrying on of business. \Then a company is incor­

porated for carrying out certain activities it would be

relevant to enquire what are the objects for which it

has been incorporated.

As was observed by Lord

Sterndale, M.

R., in

Commissioners of Inland Revenue

v. The Korean Syndicate Limited('):

"If you once get the individual and the company

spending exactly on the same basis, then there would

be no difference between them at all. But the fact

that the limited company comes into existence in a

different way

is a matter to be considered. An

indivi­

dual comes into existence for many purposes, or per­

haps sometimes for none, whereas a limited company

comes into existence . for some particular purpose, and

if it comes into existence for the particular purpose of

.carrying out a transaction

by getting possession of

concessions and turning them to account, then that

is

a matter to be considered when you come to decide

whether doing that

is carrying on a business or

not."

Justice Rowlatt followed the above view of Lord

Stern<lale,-M.

R., in

Commissioners of Inland Revenue

v. Birmingham Theatre Royal Estate Co., Limited(

3

)

and

held that

"when you are considering whether a certain

form of enterprise

is carrying on business or not, it is

material to look and see whether it is a company that

is doing

it." The objects of an incorporated company

as laid down in the Memorandum of Association are

(1) (1952) I.T.R. 108.

(2) (1921) 12 Tax C'..as. 181 at p. 202.

(3) (1923) 12 Tax Gas. 580 at p. 584.

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S.C.R. .SUPREME COURT REPORTS

,

407

certainly not conclusive of the question whether the

activities of the company amount to carrying on of

business.

(See Indian Law Reports 55 Calcutta

1059

and [ 1951] 19 l.T.R. 571). But they are relevant for

the purpose of determining the nature and

scope of

such activities.

The objects of the appellants in this

case inter alia

1"c. were to act as agents for Governments or Authorities

or for any bankers, manufacturers, merchants, shippers,

Joint Stock Companies and others and carry on all

kinds of agency business. This object standing by

itself would comprise within its arnbit the activities of

the appellants

as the agents of the Company and

constitute the work which they did

by way of general

management of the business of the company an agency

~ business. The words "carry on all kinds of agency

business" occurring at the end of the object as therein

set out were capable of including within their general

description the work which the appellants would do

as

agents for Governments or Authorities or for any

bankers, manufacturers, merchants, shippers and

otherg;

when they acted as agents of the Company which were

,_ manufacturers inter alia of cotton piece goods they-

• would be carrying on agency business within the mean-.

ing of this object. Apart however from this there is

the further fact that there was a continuity of opera-.

tions which constituted the activities of the appellants

in the general management of the Company a business.

The whole work of management which the appellants

did for the Company within the powers conferred upon

them under Article

116 of the Articles of Association -,. and clause 3 of the Agency Agreement consisted of

numerous and continuous operations and comprised of

various services which were rendered

by the appellants

as the agents of the Company. The appellants were

also entitled though with the sanction or ratification

by the Board of Directors either before or after the

dealings to enter into dealings with the Company

by

way of sales and purchases of various commodities.

There

was nothing in the Agency Agreement to prevent

~ the appellants from acting as the agents of other manu­

facturers, Joint Stock Companies etc., and the appel­

lants could have as well acted as the agents of other

Lakshminaraya.,.,

Ram Gopal and

Son Ltd.

v.

The Gouemm•nl oj

Hyderabad.

BhagwatiJ,

1954

Lakshminarayan

Ram Gopal and

Son Ltd.

v.

408 '

SUPREME COURT REPORTS [1955]

·rhe Government of

Hyderabad.

concerns besides the Company. All these factors taken

mto consideration along with the fixity of tenure, the

nature of remuneration and the assignability of their

rights, are sufficient to enable us to come to the con­

clusion

that the act1V1t1es of the appellants as the

agents of the Company constituted a business and the

remuneration which the appellants received

from the

Company

under the terms of the Agency Agreement

was mcome, profits or gain from business.

Bhagwati].

1954

.April 22.

The appellants were therefore rightly assessed for

excess profits tax and these appeals must stand dis­

missed with costs.

Appeal dismissed.

WAZIRCHAND

v.

THE STATE OF HIMACHAL PRADESH.

(With connected Appeal)

[MEHR CHAND MAHAJAN c.r., MuKHERTEA, VIvIAN

BosE, BHAGWATI and VENKATARAMA AYY.AR JJ.]

Constitution of India, articles 19, 31, 370-Code of Cri'niinal -"!'

Procedure (Act V of 1898) ss. 51, 96, 98, 165, 523-Whether seizure "

·of property not sanctioned by ss. 51, 96, 98 and 165 of the Code

.infringes fundamental rights under Arts. 19 and 31 of the Constitu~

:tion-Effect of dismissal of application under s. 523 of the Code in

such a case-Effect of Art. 370.

The provisions regarding search and seizure by the Indian

police are contained in sections 51, 96, 98 and 165 of the Code of

Criminal Procedure,

1898. None of these sections had any -application to the facts and circu1nstances of the case.

Any seizure by the Indian police of any property of a citizen

not sanctioned under the law stated above or under any other law

infringes the fundamental rights of the citizen guaranteed under

Art. 19 and Art. 31 of the Constitution of India. This position is

not affected even if the citizen \vhose goods are so seized files an

application under s. 523 of the Code and his application is dismiss~

ed by the Magistrate.

In view of the provisions of Art. 370 it is doubtful if an offence

committed

in Jammu and Kashmir could be investigated by the

police in India.

CML APPELLATE

JURISDICTION: Civil Appeals

Nos.

129 and

130 of 1952.

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