S. K. Das, J. -
(1.)These are two appeals with special leave from the Judgment and order of the High Court of Hyderabad dated April 10, 1953, in two references under S. 48(3) of the Hyderabad Excess Profits Tax Act. The question which the High Court answered against the assessee in the said references was -
"Whether in the circumstances of the case, the officer of the Excess-Profits Tax Department were right in treating the income of the assessee or the Industrial Trust Fund as income from business."
The High Court answered the question in the affirmative. The point for decision before us is if the High Court correctly answered the question.
(2.)The relevant facts which led to the question and answer are these. There were two cotton mills in the State of Hyderabad (as it was then known) called Azamjahi mills and Osmanshahi mills. They were public joint stock companies. By a Firman-e-Mubarak of 1929 issued by the then Ruler of the State was formed an institution called the Industrial Trust Fund, the purpose of which was to help large and small industries on behalf of the Government of the State. The management of the Trust was entrusted to a Committee which consisted of three members of the Government, who were called Trustees. By two agreements dated April 12, 1934 and July 27, 1934, made between the Trustees of the one part and the two mills of the other, the Trustees were appointed secretaries, treasurers and agents of the said mills. Under these agreements the Trustees were given the general conduct and management of the business and affairs of the mills and they were entitled to appoint employees and were also entitled to delegate to other persons all or any of the powers, authorities, discretions etc. under the agreements subject to the approval of the Board of Directors of the respective mills. By two other agreements also dated April 12, 1934 and July 27, 1934, the Trustees were appointed selling agents of the mills. By two agreements both dated October 16, 1938, which were supplemental to the selling agency agreements mentioned above, the Trustees were given power to delegate all or any of their powers, authorities etc. to other persons subject to the approval of the Board of Directors of the respective mill. Till October, 1938 the Trustees exercised their powers and performed their functions under the agreements aforesaid through an advisory Board, and Quamar Shaffi Tyabji, appellant before us, was appointed chairman of the Advisory Board on a remuneration of Rs. 1,500/- per month plus a certain commission. Sometime in 1938 the Advisory Board was dissolved, and on December 6, 1938, an agreement was entered into between the Trustees and the appellant. Clause 11 of the preamble of this agreement recited:
"The said Trustees are desirous of delegating such of the powers, authorities and discretions as such secretaries, treasurers and agents as also as such selling agents of the said two mills as aforesaid as are hereinafter mentioned to and appointing the said Quamar Shaffi Tyabjee as the managing agent of the business of the said trustees as such secretaries and treasurers and agents as also as such selling agents of the said two mills as aforesaid in and for the matters and purposes hereinafter mentioned." The agreement then recited that the approval of the Board of Directors of the two mills having been obtained, the appellant was appointed managing agent of the business of the Trustees as secretaries, treasurers and agents and also as selling agents of the two mills. Clause 2 of the agreement detailed the powers of the appellant which were the same as those of the Trustees to conduct and manage the business of the two mills, subject however to the general control of the Trustees. In other words, the full powers of management and of the selling agency in relation to both the mills were delegated to the appellant. Clause 3 said inter alia that the appellant would hold the office of managing agent and selling agent for the remaining period of the original managing agency and selling agency agreements. The remuneration of the appellant for the managing agency was fixed at Rs. 2,000/- per month and a commission of 2 1/2 per cent. out of the commission of 12 1/2 per cent. per annum on the annual profits payable to the Trustees, subject to the condition that Osmanshahi mills made an annual profit of Rs. 1,50,000/- and the Azamjahi mills made an annual profit of Rs. 2,00,000/-. For the selling agency a separate commission was payable on the sale of different kinds of goods subject again to the condition that the annual profits of the two mills did not fall below a particular figure. Clause 6 of the agreement related to the appointment and duties of a mill expert. Clause 7 provided for the termination of the agreement and said that the agreement shall terminate on the Trustees terminating the earlier agreements in their favour, provided however that in the event of the said Trustees deciding to transfer the said respective agreements and the rights thereunder to any one they shall in the first instance offer the same to the said managing agent on the same terms and conditions as may have been offered to them and on the further term that the managing agent shall make arrangement to the satisfaction of the said Trustees for the payment of them in cash or otherwise of the moneys they have spent in purchasing the managing agency rights of the said two mills as also the balance then due of the unsecured loans (i.e. other than first debenture loan) they have and may hereafter advance to the said two mills, so that the said managing agent shall have the first refusal thereof in manner aforesaid, provided always that the said managing agent shall intimate to the said Trustees his acceptance of the said term within six weeks of the communication to him of the said offer and in the event of his omission to do so he shall be deemed to have not accepted the same. Clause 9 of the agreement is also important. It said:
"The managing agent shall not assign the benefit of this agreement, the same being personal to himself." Clauses 10 and 11 related to the eventuality of winding up of the mills and its effect on the appellant's rights under the agreement.
(3.)Under the terms of the agreement dated December 6, 1938, the appellant conducted the business of the mills, both as to management and selling. He was assessed to excess profits tax for two chargeable accounting periods 1351 F and 1352 F, corresponding to October 1, 1941 to September 30, 1942 and October 1, 1942 to September 30, 1943, respectively. The total income assessed for 1351 F was Rs. 2,37,451/-, which included a sum of Rs. 2,11,230/- representing the appellant's managing agency allowance and commission. The total income for 1352 F was Rs. 4,90,027/- which included Rs. 4,45,775/- being the managing agency commission and allowance of the appellant.