Lakshminarayan Ram Gopal and Son Ltd vs The Government of Hyderabad

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeals Nos. 292 and 312 of 1950

Decision Date: 01 April 1954

Coram: Natwarlal H. Bhagwati, B. Jagannadhadas

In this case the Supreme Court of India rendered its judgment on 1 April 1954 involving the petitioner Lakshminarayan Ram Gopal and Son Ltd and the respondent, the Government of Hyderabad. The judgment was authored by Justice Natwarlal H. Bhagwati, and the bench comprised Justice Natwarlal H. Bhagwati together with Justice B. Jagannadhadas, Justice Das and Justice Sudhi Ranjan. The citation of the decision appears as 1954 AIR 364 and 1955 SCR 393, with additional citator references including RF 1954 SC 470, R 1957 SC 846, RF 1957 SC 852, F 1960 SC 1269, R 1960 SC 1279, MV 1966 SC 843, R 1966 SC 1514, RF 1973 SC 637 and RF 1977 SC 1677. The case concerned the interpretation of the Master-Servant and Principal-Agent distinctions under the Hyderabad Excess Profits Tax Regulation, specifically the question of whether certain activities constituted a business and whether the remuneration received was income, profit or gain from such a business. The headnote explained that the essential difference between the master-servant relationship and the principal-agent relationship is that a principal may direct the work the agent must perform, whereas a master may also dictate the manner in which the work is performed. It further distinguished an agent from a servant and from an independent contractor, describing a servant as someone who works under the direct control and supervision of his master and must obey reasonable orders; an independent contractor as a person who works free from such control and is tasked only with achieving a specified result using his own means; and an agent as a person who must follow lawful instructions from his principal but is not subject to the principal’s direct control over the method of performance. The Court held that, applying these principles and examining the terms of the agency agreement, the appellants were agents of Dewan Bahadur Ram Gopal Mills Ltd. They performed the general management of the company’s business while remaining subject to the overall control and supervision of the company’s directors. However, the directors exercised only a general supervisory role within the limits of their authority, and the appellants, as agents, possessed full discretion in deciding both the method and the manner in which that general management work was carried out, including the power of sub-delegation reserved to them.

The Court observed that the Articles of Association left no doubt that the appellants functioned as agents of the company rather than as mere employees paid by wages or salary. It further held that a combination of factors—including the fixed term of their appointment, the nature of the remuneration they received, and the ability to assign their rights—demonstrated that the appellants’ activities as agents constituted a business undertaking. Consequently, the remuneration received by the appellants from the company pursuant to the Agency Agreement was regarded as income, profit or gain derived from business, and the appellants were properly assessed under the Hyderabad Excess Profits Tax Regulation.

These matters arose in two civil appeals, numbered 292 and 312 of 1950, which challenged the judgment and order of the High Court of Judicature at Hyderabad delivered by Justice Ansari, Justice Qamar Hasan and Justice Manohar Pershad in cases 180-181 of 1954. Counsel for the appellant, assisted by two junior counsel, appeared for the appellants, while the Attorney-General for India, represented by counsel, appeared for the respondent. The judgment of the Supreme Court was delivered on 1 April 1954 by Justice Bhagwati.

The appeals concerned questions that the Commissioner of Excess Profits Tax, Hyderabad, had referred to the High Court for determination. The core issue was whether the appellants were liable under the excess profits tax for the sums they received as remuneration from Dewan Bahadur Ramgopal Mills Company Ltd., acting in their capacity as agents. Dewan Bahadur Ramgopal Mills Company Ltd. had been incorporated on 14 February 1920 in the Hyderabad territory then ruled by His Exalted Highness the Nizam. The appellants, incorporated as a private limited company in Bombay, entered into an agreement with the Mills Company appointing them as agents for a period of thirty years, with specific terms and conditions recorded in the contract.

During the Fasli years 1351 and 1352, the appellants performed only the functions of agents for the Mills Company and received remuneration according to the agency agreement. Under section 13 of the Hyderabad Excess Profits Tax Regulation, the Excess Profits Tax Officer issued a notice requiring the appellants to pay the tax due for those accounting periods. The appellants filed their accounts and contended that the remuneration paid by the Mills Company was not taxable because it did not constitute income, profit or gain from business and therefore lay outside the scope of the Excess Profits Tax Regulation.

The High Court rejected the appellants’ contention and, on 24 April 1944, the Excess Profits Tax Officer made an order assessing the appellants’ income for the Fasli years 1351 and 1352 at rupees 8,957 and rupees 83,768 respectively, and levied the corresponding tax. The appellants appealed this assessment to the Deputy Commissioner of Excess Profits Tax, who dismissed the appeal. Subsequently, the appellants applied under section 48(2) for a statement of the case to be filed in the High Court; the Commissioner refused, prompting the appellants to file a petition under section 48(3) seeking an order directing the Commissioner to provide the statement. The High Court ordered the Commissioner to comply, and the statement was filed on 26 February 1946. The Commissioner then referred four questions to the High Court for determination, concerning the legal status of the petitioner company, the nature of its relationship with the Mills Company, the character of the remuneration, and the applicability of the personal qualification principle under section 2, clause (4), of the Excess Profits Regulation.

In this case the appellants first made an application under section 48(2) requesting that the Commissioner provide a statement of the case to the High Court; the Commissioner refused the request. Consequently the appellants instituted a petition under section 48(3) before the High Court seeking an order that would compel the Commissioner to furnish the statement of the case. The High Court, acting upon that petition, directed the Commissioner to issue the statement, and the Commissioner complied by filing the statement on 26 February 1946. Following the filing, the Commissioner referred four specific questions to the High Court for determination. The first question asked whether the petitioner company was a partnership firm or a registered firm. The second question concerned whether, under the terms of the agreement, the petitioner functioned as an employee of the Mills Company or was instead carrying on a business as an agent. The third question sought to ascertain whether the remuneration received from the Mills Company was attributable to services rendered or whether it represented remuneration for business activity. The fourth question examined whether the principle of personal qualification set out in section 2, clause (4) of the Excess Profits Regulation applied to the petitioner company. Recognising the significance of these issues, the Commissioner asked the Full Bench of the High Court to decide them. The Full Bench delivered its judgment, with the majority resolving only questions 2 and 3, holding that these were the sole matters determinative of the reference against the appellants. The appellants subsequently appealed to the Judicial Committee, but before the Committee could hear the appeals the territories of Hyderabad merged with India. The appeals were later heard by a Supreme Court Bench sitting in Hyderabad on 12 December 1950, at which time an order transferred the appeals to the Supreme Court at Delhi. The appeals are now before this Court for final disposal. The Court noted that questions 1 and 4, originally referred by the Commissioner, have not been seriously pressed before it. Regarding the nature of the appellants as a partnership or a registered company, the Court observed that the rule excluding income from business on the ground that it depends wholly or mainly on the personal qualifications of the assessee does not apply, because the income in question cannot be characterised as professional income and neither a partnership nor a registered company can be said to possess personal qualifications relevant to the acquisition of that income. Consequently the principal issues for determination before the High Court at Hyderabad and before this Court were questions 2 and 3, which required deciding whether the appellants were servants or agents of the Mills Company and whether their remuneration constituted wages or salary or, alternatively, income, profit or gain from business. The Court further noted that the appellants were incorporated as a private limited company with its registered office in Bombay, and that the objects of their incorporation included, among others, the role of acting as agents for governments, authorities, bankers, manufacturers, merchants, shippers, joint-stock companies and others, and carrying on agency business.

The objects of the appellant company were set out in its memorandum of association. The first object authorised the company “to act as agents for any bankers, manufacturers, merchants, shippers, joint-stock companies and others and to carry on all kinds of agency business.” The second object authorised the company “to carry on in India and elsewhere the trade or business of merchants, importers and exporters, together with their branches and all related activities.” Under Article 115 of the Articles of Association of the Mills Company, the appellant and its assigns were appointed as agents of the Mills Company. Their appointment was made on the terms, provisions and conditions that were specified in the agreement referred to in clause 6 of the Mills Company’s memorandum of association.

Article 116 of the same articles provided that the general management of the Mills Company’s business, subject to the control and supervision of its directors, was to be placed in the hands of the agents. The agents were given the power and authority, on behalf of the company and subject to that supervisory control, to enter into all contracts and to do everything that was usual, necessary and desirable for managing the company’s affairs or for carrying out its objects. The agents were also empowered to appoint and employ persons for the purpose of transacting and managing the company’s affairs or for any other purpose connected with the business. They could, from time to time, remove or suspend such managers, agents, clerks and other employees as they thought proper, and they could determine the terms of employment, remuneration and other conditions as they deemed fit. In addition, they were authorised to exercise all rights and liberties that were reserved to them by the agreement mentioned in clause 6, including the rights and liberties contained in clause 4 of that agreement.

Article 118 further authorised the agents to sub-delegate any of the powers, authorities and discretions vested in them. In particular, the agents could, from time to time, appoint an attorney or attorneys to manage and transact the affairs of the company in any specified locality, doing so in any manner they considered appropriate.

The agency agreement that was executed pursuant to the appointment under Article 115 stipulated that the appellant and its assigns would serve as agents of the Mills Company for a period of thirty years from the date of the company’s registration. The agreement also provided that the agents would continue in that role until they chose to resign of their own will.

The remuneration of the appellant as an agent was set out in the agreement. The appellant was to receive a commission calculated as a percentage of the sale proceeds derived from all yarn, cloth and other produce of the Mills Company, including cotton that was grown. This commission was to be exclusive of any remuneration or wages that might be payable to bankers, solicitors, engineers or other persons employed by the appellant on behalf of the company or for conducting the company’s business. In addition to the commission, the appellant was to be reimbursed for all expenses actually incurred by it in connection with the business, supervision and management of the Mills Company.

The Court observed that the appellants were authorized to recover the actual expenses they incurred while conducting the business of the Company, including costs related to supervision and management. They were also permitted to designate any person or persons in Bombay to act as their agents there, as well as in any other locations relevant to the Company’s business. The Court then highlighted that Clauses 3 and 4 of the agency agreement were pivotal and reproduced them in full for consideration.

Clause 3 stipulated that, subject to the control and supervision of the Directors, Lachminarayan Ramgopal and Son Limited would have general conduct and management of the Company’s business and affairs. The clause empowered the appellants, on behalf of the Company, to acquire land, tenements and other buildings by purchase, lease or any other means; to erect, maintain, alter and extend factories, warehouses, engine houses and other structures in Hyderabad and elsewhere within the Nizam’s territories and throughout India. It further authorized them to purchase, pay for, sell, resell and repurchase machinery, engines, plant, raw cotton, waste, jute, wool, other fibres and produce, stores and other materials; to manufacture yarn, cloth and other fabrics; and to sell such products both within the specified territories and elsewhere in India, either on credit or for cash, for present or future delivery. The clause also required them to execute, become parties to, and, where necessary, cause registration of all deeds, agreements, contracts, receipts and other documents, and to insure the Company’s property as they deemed appropriate. In addition, they were authorized to institute, conduct, defend, compromise, refer to arbitration or abandon any legal or other proceedings, claims or disputes involving the Company. The clause further allowed them to appoint, employ, discharge, re-employ or replace engineers, managers, commission dealers, brokers, clerks, mechanics, workmen and other officers and servants, setting terms of office, remuneration and other conditions as they saw fit. Moreover, they could draw, accept, endorse, negotiate and sell bills of exchange and hundies, with or without security, receive and give receipts for all monies payable to or receivable by the Company, draw cheques against the Company’s funds, and generally make all arrangements and perform all acts on behalf of the Company, its successors and assigns, that were not expressly reserved for the Directors.

Clause 4 provided that Lachminarayan Ramgopal and Son Ltd. would be at liberty to deal with the Company by selling cotton, all raw materials and articles required for the Company’s purposes, and by purchasing from the Company yarn, cloth and any other articles manufactured by it. The clause also permitted the appellants to transact with any firm in which any of the shareholders of Lachminarayan Ramgopal and Son Ltd. might be directly or indirectly interested, provided that such dealings were always sanctioned, passed or ratified by the Board of Directors either before or after the transactions.

In the agreement the parties specified that any dealings would be sanctioned, passed, or ratified by the Board of Directors, whether such sanction occurred before the dealing or after it. Clause 8 stated that, at the option of the appellants, two of the present members of the appellants could serve as ex-officio Directors of the Company. Clause 9 gave the appellants the power to assign the agreement and the rights arising under it to any person, firm or company, provided that such assignment received the approval and sanction of the Board and that the assignee possessed authority under its constitution to become bound by the obligations undertaken by the appellants. The Court observed that no documents other than those mentioned above were produced by the appellants before the Income-tax Authorities or before the High Court, and therefore the questions to be decided had to be resolved solely on the basis of those materials.

The Court then explained that if, on a construction of the instruments, it was held that the appellants were not servants of the Company but rather agents of the Company, a further inquiry would be necessary to determine whether the appellants’ activities amounted to the carrying on of a business. The Court added that, should the appellants not be classified as servants, the remuneration they received could not be characterised as wages or salary. However, even if they were agents, the Court noted that the question of whether their activities constituted the carrying on of a business would remain open; in that event only the remuneration paid to them by the Company would be treated as income, profits or gains from business.

To illustrate the distinction between a servant and an agent, the Court referred to Powell’s Law of Agency, page 16, which sets out the following principles: (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. The Court also cited page 20 of the same text, which explains that (a) a servant is a person who not only receives instructions from his master but is also subject to the master’s right to control the manner in which the servant carries out those instructions; an agent, by contrast, receives his principal’s instructions but is generally free to execute them at his own discretion; (b) a servant, qua servant, has no authority to make contracts on behalf of his master, whereas the purpose of employing an agent is to authorise the agent to make contracts on behalf of his principal; (c) an agent is usually paid by commission for achieving the result instructed by his principal, while a servant is normally paid by wages or salary.

The Court further referred to the statement of law found in Halsbury’s Laws of England, Hailsham Edition, Volume 22, page 113, paragraph 192, which observes: “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.”

The Court referred to the clarification provided in the Hailsham edition of Halsbury’s Laws of England, volume one, page 193, article 345. That passage differentiates an agent, a servant and an independent contractor. It states that an agent must be distinguished on the one hand from a servant and on the other hand from an independent contractor. A servant, the text explains, works under the direct control and supervision of his master and is required to obey all reasonable orders that are given in the course of his employment. By contrast, an independent contractor is completely free of any control or interference; the contractor merely undertakes to achieve a specified result by using his own means to produce that result. The passage further observes that an agent, although required to exercise his authority in accordance with all lawful instructions that may be issued by his principal from time to time, is not subject in the performance of that authority to the principal’s direct control or supervision. The passage concludes by noting that an agent, as a category, is not a servant, although a servant may, for certain purposes, be regarded as the implied agent of his master, the scope of that implied agency depending upon the servant’s duties or position.

Applying those principles to the appellants, the Court observed that it was undisputed that the appellants were to act as agents of the Company and to carry out the general management of the Company’s business subject to the overall control and supervision of the Directors. However, the Court emphasized that this did not mean that the Directors exercised direct control and supervision over the manner or method by which the appellants performed their work. The Directors were empowered to set the general policy of the Company and to issue directions concerning management that they considered necessary. Nonetheless, the day-to-day management of the business, as described in Article III 6 of the Articles of Association and in clause 3 of the Agency Agreement, was left to the discretion of the appellants. Apart from telling the appellants what work they were required to do as the Company’s agents, the Directors did not confer upon them the additional right to dictate how that work of general management should be carried out. Within the limits of the Directors’ authority, the appellants, as agents, possessed full discretion as to both the method and the manner of performing the general management functions. For example, the appellants had complete latitude to enter into agreements and contracts in the manner they deemed appropriate, and they possessed the power to appoint, employ, dismiss, re-employ or replace the Company’s officers and servants on such terms, with such duration of office and remuneration, as they thought fit.

They also possessed a general authority to make all necessary arrangements and to perform any acts on behalf of the Company that might be required or advantageous, provided that such acts were not expressly reserved for the Directors. The Court observed that this authority did not amount to a direct control and supervision by the Directors comparable to that of a master over a servant. Instead, the authority established the appellants as agents of the Company who were to exercise their powers in accordance with the overall control and supervision of the Directors, without being subject to the immediate, day-to-day direction that a principal normally exercises over a servant.

The Court further noted that the liberty granted to the appellants under clause 4 of the Agency Agreement, which permitted them to engage in the sale and purchase of commodities mentioned therein, did not create a master-servant relationship. Rather, the clause empowered the appellants to deal with the Company on a footing akin to that of principals, even though clause 8 of the same Agreement required two of their members, while serving as ex-officio Directors of the Company, to hold those positions. The power to assign the Agreement and the rights arising from it, which was reserved to the appellants under clause 9 and was subject only to the Board’s approval and sanction, was also deemed inconsistent with a servant’s power, which would ordinarily be limited to tasks expressly delegated by a master.

In addition, the Court pointed out that the appellants enjoyed a right to remain employed as agents of the Company for a period of thirty years from the date of registration, and thereafter for such further period as they might choose to resign. This provision, the Court held, could not be reconciled with the notion that the appellants were merely servants, because such a long-term, self-terminable engagement reflected the characteristics of agency rather than ordinary employment.

The remuneration structure further reinforced the agency relationship. The appellants were to receive a commission of two and one-half per cent of the sale proceeds from the Company’s produce. The Court explained that such a commission-based payment more closely resembled the compensation a principal gives to an agent for managing the principal’s business, as opposed to wages or salary that are typically paid to a servant on a fixed or hourly basis.

Considering all these circumstances together—the broad powers of arrangement, the authority to buy and sell commodities, the ability to assign the agreement subject only to Board approval, the guaranteed thirty-year tenure, and the commission-based remuneration—the Court concluded that the appellants were agents of the Company and not merely servants receiving wage-based pay.

Nevertheless, the Court indicated that even if the appellants were correctly characterized as agents, a further issue required determination: whether the work performed under the Agency Agreement amounted to carrying on a business such that the remuneration received constituted income, profit, or gain from business. The Court rejected the argument that the appellants acted solely as agents of the Mills Company and therefore did not engage in business. It observed that the definition of a business does not necessarily require dealings with multiple individuals or concerns; activities confined to a single individual or concern can still constitute a business if the nature and scope of those activities, rather than their breadth, satisfy the statutory criteria. Consequently, the appellants’ activities could not be dismissed as non-business merely because they were limited to one entity.

In this case the Court noted that the limitation of the appellants’ activities to a single individual or concern did not control the inquiry. What mattered, the Court said, was the nature and the scope of the activities, whether they arose by chance or by design, and not the size or breadth of the operations. The Court then examined whether those activities fell within the inclusive definition of “business” contained in section 2, clause 4 of the Excess Profits Tax Regulation, Hyderabad. That provision defines business to include any trade, commerce or manufacture, or any adventure in the nature of a trade, commerce or manufacture, or any profession or vocation. However, it expressly excludes a profession carried on by an individual or by individuals in partnership when the profits depend wholly or mainly on their personal qualifications, unless the profession consists chiefly of making contracts for others or giving advice of a commercial character connected with the making of contracts.

The Court found that the work performed by the appellants under the Agency Agreement did not amount to trade, commerce, manufacture, or any adventure in the nature of those activities, nor was it a profession or vocation. The Court emphasized that activities which constitute “carrying on business” need not be limited to trade, commerce or manufacture, nor to the exercise of a profession; they may also consist of rendering services of a varied character to others. The Court further explained that the criteria applicable to individuals for determining whether an activity constitutes a business under the inclusive definition may not apply to incorporated companies. Even if the same activities undertaken by an individual would be regarded as a business, the same activities undertaken by a corporate entity might not be, and the proper approach is to refer to the general legal position on whether the incorporated company is carrying on a business that yields income, profits or gains from business.

To illustrate this principle, the Court referred to the decision in William Esplen, Son and Swainston, Limited v. Commissioners of Inland Revenue. In that case a private limited company was incorporated to carry on the business of naval architects and consulting engineers. Prior to incorporation a partnership of three persons had conducted the same profession, and those three persons became the sole shareholders and directors of the new company. The Court observed that the work performed by the company was identical in character and in all respects with the work previously done by the partnership, which was the professional activity of naval architects. The reference was used to show that, despite the similarity of work, the legal assessment of whether a corporation is carrying on a profession depends on the statutory definition and the nature of the profits, not merely on the continuity of the activity itself.

In the matter before the Court, the work of naval architecture and consulting engineering was carried out personally by the three persons who were shareholders and directors of the company. A question was raised as to 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 submitted that the company was indeed carrying on the profession of naval architects and consulting engineers because its members were three qualified naval architects. The Court rejected that submission. It held that although the character of the work performed by the company was relevant, the company was not carrying on the profession of naval architects as defined by the statute, because a profession, for the purposes of the provision, requires that the profits depend principally on the personal qualifications of the individual who provides the service, and such dependence can exist only in the case of a natural person. A company can perform naval-architect work only by sending an individual naval architect to the customer to do the work, and therefore the company was not engaged in a profession but was engaged in a trade or business in the ordinary sense of those words. The Court noted that when a partnership is formed it can be said to be carrying on a business, because under section 4 of the Indian Partnership Act a partnership is the relation among persons who have agreed to share the profits of a business carried on by any or all of them acting for all, as explained in Inderchand Hari Ram v. Commissioner of Income-Tax, U.P. & C.P. However, the incorporation of a company does not automatically mean that it is created for the purpose of carrying on a business. Section 5 of the Indian Companies Act provides that any seven or more persons, or, in the case of a private company, any two or more persons, may associate for any lawful purpose by subscribing their names to a memorandum of association and thereby form an incorporated company, and the lawful purpose for which they associate need not be the carrying on of business. Consequently, when a company is formed to pursue certain activities, it is necessary to inquire into the objects for which it was incorporated. As Lord Sterndale, M.R., observed 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 individual comes into existence for many purposes, or perhaps 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 concessions and turning them to account …”.

In this case the Court observed that the question of whether a particular activity amounted to carrying on a business required an examination of the nature of the undertaking and, in particular, whether the activity was undertaken by a company. The Court referred to the earlier observation of Lord Sterndale, M.R., in Commissioners of Inland Revenue v. The Korean Syndicate Limited, where it was noted that the manner in which a limited company comes into existence is a relevant factor in deciding whether the activity constitutes a business. Justice Rowlatt adopted this view in Commissioners of Inland Revenue v. Birmingham Theatre Royal Estate Co., Limited, holding that the determination of whether an enterprise is carrying on business must consider whether the enterprise is a company. The Court then explained that the objects clause in a Memorandum of Association, although not decisive on the issue of whether the company’s activities constitute a business, is nevertheless relevant for ascertaining the nature and scope of those activities. The Court cited authorities such as [1952] I.T.R. 108, (1921) 12 Tax Cas. 181 at 202, (1923) I2 Tax Cas. 580 at 584, Indian Law Reports 55 Calcutta 1059 and (1951) 19 I.T.R. 571 to support this proposition. Turning to the specific objects of the appellants, the Court noted that the memorandum declared among other purposes that the appellants were to act as agents for governments, authorities, bankers, manufacturers, merchants, shippers, joint-stock companies and others, and to “carry on all kinds of agency business.” The Court held that this wording, taken by itself, encompassed the work performed by the appellants as agents of the company and therefore fell within the ambit of agency business. The phrase “carry on all kinds of agency business” was interpreted broadly enough to include the activities of the appellants when they acted as agents for governments, authorities, bankers, manufacturers, merchants, shippers and other parties, especially where the company itself was a manufacturer of cotton piece goods. Accordingly, such activities were deemed to be agency business within the meaning of the object clause. Moreover, the Court found that there was a continuous series of operations carried out by the appellants in the general management of the company, which amounted to a business in its own right. The management functions performed under the authority granted by Article 116 of the Articles of Association and clause 3 of the Agency Agreement involved numerous and ongoing operations and a variety of services rendered by the appellants as agents of the company. The Court further observed that the appellants, with the sanction or ratification of the Board of Directors either before or after the transactions, were authorized to enter into purchase and sale dealings with the company involving various commodities. Nothing in the Agency Agreement prohibited the appellants from acting as agents for other manufacturers, joint-stock companies or other concerns, and they therefore could have acted as agents for entities other than the company. Considering all of these factors, the Court concluded that the totality of the appellants’ activities satisfied the criteria for carrying on a business.

In arriving at its decision, the Court considered several characteristics of the relationship between the appellants and the company. These characteristics included the permanence of the appellants’ tenure, the character of the remuneration they received, and the fact that their rights could be assigned. The Court held that taken together these features were enough to allow it to reach the conclusion that the work performed by the appellants in their capacity as agents of the company amounted to the conduct of a business. Accordingly, the compensation paid to the appellants by the company pursuant to the provisions of the Agency Agreement was characterised as income, profit or gain derived from business activities. Because the remuneration fell within the definition of business income, the Court found that the assessment of excess-profits tax that had been made against the appellants was proper. Consequently, the Court ordered that the appeals raised by the appellants be dismissed. In addition, the Court directed that the appellants bear the costs of the proceedings. Thus the taxation authority’s determination was upheld as consistent with the legal criteria applicable to business income. The dismissal of the appeal also signified that no further relief would be granted to the appellants in this matter. The final order therefore dismissed the appeal and imposed costs upon the appellants.