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Qamar Shaffi Tyabji v. Commissioner, Excess Profits Tax, Hyderabad 1960 AIR 1269, 1960 SCR (3) 546

Agency is a fiduciary relation between one person who authorises to do something and another who is authorised to act on the former’s behalf and the latter agrees to do so as defined under s.182[1]. The case is based on 3 principles of Agency i.e.
  1. Relation between principal and person duly appointed by agent to act in business of agency. S.194[2] explains the relation between an agent and a principle in a contract of agency and it also clarifies when a person can be recognised as an agent.
  2. An agent is not subject to the direct control or supervision of the Principal. here the principle has the right to direct the work to the agent but he right to have a direct control over the agent.
  3. Difference between an agent and a servant or a sub-agent. As the sole difference between agent and servant is that an agent can create a contractual liability between agent and principle, but a servant cannot. A principle cannot direct as to how a work is to be done but a master can. Similarly, a sub-agent is appointed by an agent and works under him/her.[3]

Background
  1. An industrial Trust Fund was formed in the State of Hyderabad in 1929 by the then ruler of the state. The main purpose of the Trust Fund was to support the large and small industries om behalf of the government. The management of the Trust Fund of entrusted to a three member committee who were called ‘trustees
     
  2. In the state of Hyderabad there were two cotton mills Azamjahi Mills and Osmanshahi Mills, and by two agreements dated on 12 April,1934 and 27 July 1934 between the trustees of the Trust fund and the mills, the trustees were appointed as the secretaries, treasures and agents of both the mills. Hereby the trustees were given certain powers to appoint employees and were entitled to delegate other people all or any of the powers authority, etc by the approval of the board of directors or the mills respectively. And were also constituted by certain conduct and management of the business and affairs of the mills.
     
  3. By two more agreements dated on 12 April,1934 and 27 July, 1934, the trustees were appointed selling agents (buyer's agent) of the mills and on 16 October 1938 the trustees were given allotted powers to delegate powers, authorities, etc., to others with the approvals of the board of directors of the mills, respectively.
     
  4. Quamar Shaffi Tyabji was appointed as the chairman of the of the advisory board with Rs. 1,500/ month as remuneration with certain commission. But in 1938 the advisory board was dissolved and in 6 december 1938 the trustees and QS Tayabji entered into a new agreement and he was appointed as the managing agent of the trustees.
     
  5.  By clause 2 of the agreement the appealant was given full power of management and selling agency.
    • clause 3 states the time period of the appealaant as the managing agent for the remaining time period of the original agreement. And it also discusses about the remuneration for managing agency was Rs. 2000/month plus the commission of 2 ˝ % and for selling agency separate commission was payable respectively on certain conditions.
    • clause 7 states thee terms and conditions for the termination of the agreement.
       
  6. As per the agreement the appellant conducted his duties as the management aswell as the selling agent of the mills. But he was evaluated to excess profit tax for 2 amounting periods. For this he contented that he was only an emoplyee of the Trust Fund and his remunerations were merely his salary as per the agreement and hence he is not liable to excess profit tax levid on him. But contrary to his contention, the excess profit tax authority refused his contention and referred the case to the HC for the decision.

Issue
In the given case the issue is:
Whether in the circumstances of the case, the officer of the Excess-Profits Tax Department was right in treating the income of the assesses or the Industrial Trust Fund as income from business.

As per the terms of the agreement(6.12.1938), the appellant acts as the management and the selling agency of the trust fund. Hereby, he was assessed to excess profits tax for two accounting periods i.e. 1941-1942 and 1942-1943 respectively. Therefore, the above issue can be divided into two different issues i.e. whether the appellant is an agent or a servant of the principle or not under the agreement of 1934 and the second issue is whether the appellant was liable for the excess profits tax or not.

Judgment
For the 1st issue, the bench of three judges said that the appellant is an agent, not a sub- agent or a servant because according to the agreement of 1934, the trustees (agent) had expressed authority to appoint anyone to act as principles if they deem so for the business. And here, as per s.194[4], the appellant acts as an agent of the principle for such part of business as was entrusted to him.

Here the appellant argued that in spite of being described as managing agent he was just acting as an employee and was just carrying his duties. He said that he was employed by the trustees on certain terms and conditions and they gave him certain powers as per his work therefore he acts as an individual not as a firm. But his contention was not accepted by the court and by citing the case of Lakshminarayan Ram Gopal and Sons Ltd. v. Govt. of Hyderabad[5], they explained the difference between position of an agent, servant and independent contractor. And by the clause 9 of agreement of 12.4.1934, they came into a conclusion that the appellant was an agent.

o For the 2nd issue, the court held that as per the agreement 6.12.1938, when the appellant was appointed by accepting the duties & responsibilities of the managing agent, he undertook a business of his own. Therefore, the income derived from remuneration and commission as per the sales was liable to excess profit tax. By citing the case of J.K. Trust v. Commissioner of Income Tax[6] the court stated that the managing agency was individual business.

And by analysing the agreement of 6.12.1938, the court held their abovesaid judgment, they said that as per clause 2 the appellant had to solely manage the business of two mills; clause 3 was related to the tenure and his income and ; clause 7 was related to termination of business. Therefore, they contended to read and analyise the the managing agency as a whole and not by a certain clause.
  • Hence, the appeal was dismissed, and it was held that the High Court correctly answered the question in affirmative.

Analysis
The judgment was efficient enough to resolve the abovesaid issue in the given case. Here, the judges clearly defined the silver line between a servant and an agent. By citing the case of Lakshiminarayan Ram Gopal and Son Ltd. v. Govt. of Hyderabad, they came into a conclusion that a principle has the right to direct the work of the agent but he has no direct control over the agent but for a servant, the master has all the rights to direct his/ her servant in what way the work should be done, the master has a direct control over the servant and is bound to follow all the reasonable and lawful orders given by the master.

The case also examines importance of reading and analysing the agreement in whole and not just by certain clauses. The case was further cited in two more cases K.S. Rashid And Son v. The Income-Tax Investigation Commission, Etc.[7] and J. K. Trust, Bombay v. The Commissioner Of Income-Tax/Excessprofits Tax, Bombay[8]; therefore the case is contributing substantially to the jurisprudence of agency contracts per se as it explains a very pivotal difference between master and agent in such a convoluted situation.

Conclusion
Contracts based on a fiduciary relation between an agent and a principle is not a new concept. It could be expressed or implied. This case holds an indispensable value in the eyes of law. as it examines the relation between an agent, servant and sub-agent. It also lays the concept of reading the agreement as a whole and not just by clauses. The judges easily explained the tangled issue by distributing it into two. The case has contributed substantially in the concept of Agency. According to me the decision held was appropriate and no further review is required in the case.

End-Notes:
  1. Indian Contract Act, 1872
  2. Supra Note1
  3. S.191 of Indian Contract Act, 1872
  4. Indian Contract Act, 1872
  5. Lakshminarayan Ram Gopal and Sons Ltd. v. Govt. of Hyderabad; 1954 AIR 364, 1955 SCR 393
  6. J.K. Trust v. Commissioner of Income Tax; AIR 1953 Bom 232, (1953) 55 BOMLR 135, ILR 1953 Bom 740, 1953 23 ITR 143 Bom
  7. K.S. Rashid And Son v. The Income-Tax Investigation Commission, Etc.; AIR 1954 SC 364
  8. J. K. Trust, Bombay v. The Commissioner Of Income-Tax/Excessprofits Tax, Bombay; (1958) 1 SCR 65.

    Award Winning Article Is Written By: Ms.Aryma Brajesh Yadav
    Awarded certificate of Excellence
    Authentication No: MA112549522504-05-521

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