V.Bhargava, J. - (1.) These two references arise out of the assessment of the same assessee Messrs. Inderchand Hari Ram, Gorakhpur, in respect of two different assessment years, viz., 1940-41 and 1941-42. Since the question, that arose, was common to both the references, the Income-tax Appellate Tribunal, Allahabad, made one consolidated order of reference and, by it, referred the following question to this Court for opinion: "Whether, in the circumstances of the case, the income derived by the applicant firm both as Managing and Sole Agents of Messrs. Shankar Sugar Mills, Limited, Captainganj, Gorakhpur, was rightly assessed under Section 10 or whether the income is assessable under Section 7 of the Indian Income-tax Act?"
(2.) The facts relating to these references, as given in the statement of the case, are that the assessee is a firm registered under the Indian Partnership Act, having come into existence through a deed of partnership which mentioned that it was being constituted with a view to floating a private limited company to be called the Shankar Sugar Mills, Limited with a capital of 13 lacs out of which a sum of 12 lacs of rupees was to be subscribed by the partners according to their shares in the firm and to securing its Managing Agency. The partnership deed provided that "The business of the partnership shall be to float and obtain the Managing Agency of the proposed Shankar Sugar Mills, Limited, and shall be carried on at Captainganj, District Gorakhpur, and at such other place or places as the partners may from time to time agree upon." In pursuance of this deed of partnership, a private company called the Shankar Sugar Mills, Limited, was actually floated and the Managing Agency of the company was obtained by the assessee firm. According to the Memorandum and Articles of Association of the Shankar Sugar Mills, Limited, the assessee firm styled as Inderchand Hari Ram or their assignees or successors in business were entitled to remain and continue as Managing Agents for the period (of 31 years certain?) from the incorporation of the company. The partnership deed had further provided that "The partnership shall not be dissolved by the death of any of the partners, the deceased partner's legal heir and representative shall become partner 'ipso facto'." The appointment of the assessee firm as Managing Agents of the Shankar Sugar Mills, Limited, carried with it the right to receive an allowance of Rs. 1,000/- a month, a commission of 1 per cent. on all sales of the company's products and a commission varying from 5 to 10 per cent. on the profits of the company for working as such. Consequently, the assessee firm received a total sum of Rs. 34,177/6/3 for remuneration and commission in the previous year corresponding to the assessment year 1940-41 and a sum of Rs. 34,440/- in the previous year corresponding to the assessment year 1941-42. In addition, during both these years, the assessee firm worked as the sole selling agents of Messrs. Shankar Sugar Mills, Limited, and received commission on sales if sugar and income under some other heads which, after deduction of expenses, gave a net revenue of Rs. 11,847/- in the previous year corresponding to the assessment year 1940-41. In the next year, the income from this sole agency business was Rs. 13,139/-. The total income of the assessee firm in the two years in dispute was thus Rs. 46,024/6/3 and Rs. 47,579/- respectively. The Income-tax Officer assessed this entire income of the assessee firm in each of the years as income from business under Section 10 of the Indian Income-tax Act. The contention of the assessee firm that the income received by it for working as Managing Agents as well as for working as Sole Agents of Messrs. Shankar Sugar Mills, Limited, should be treated as salary and assessed under Section 7 of the Act was rejected by the Income-tax Officer. The assessee appealed to the Appellate Assistant Commissioner of Income-tax and on dismissal of the appeal to the Income-tax Appellate Tribunal. The latter also dismissed the appeals and consequently, the assessee applied for these references.
(3.) The only question to be decided in these references is whether the assessee firm, in working as Managing and Sole Agents of Messrs. Shankar Sugar Mills, Limited, was working as a servant earning salaries falling within Clause (i) of Section 6 of the Indian Income-tax Act, or earning profits and gains of business, profession or vocation mentioned in Clause (iv) of that section. We may first take up the question of the capacity in which the firm worked as Managing Agents of Messrs. Shankar Sugar Mills, Limited. In Clause (9A) of Sub-section (1) of Section 2 of the Indian Companies Act, a managing agent is defined as meaning "a person, firm or company entitled to the management of the whole affairs of a company by virtue of an agreement with the company, and under the control and direction of the directors except to the extent, if any, otherwise provided for in the agreement and includes any person, firm or company occupying such position by whatever name called: 'Explanation': If a person occupying the position of a managing agent calls himself a manager, he shall nevertheless be regarded as managing agent and not as manager for the purposes of this Act." This definition of managing agent makes it clear that a managing agent need not necessarily be a servant of the company whose affairs are managed by that managing agent. All that is needed is that the managing agent should have an agreement with the company under which he receives the right of management of the whole affairs of the company though this management of the affairs of the company is to be under the control and direction of the directors except to the extent, if any, otherwise provided for in the agreement. Such an agreement may be entered into between a person who is already a servant of the company or it may be entered into between the company and some person who may not be a servant of the company. The mere appointment as a managing agent or working as such would not necessarily make the person a servant of the company. Whenever any one works as a managing agent of a company, that person must be reimbursed in some form or the other for the work done by him. In a case where a managing agent happens to be a servant of the company, the payment to him of his salary as servant may compensate the person for the whole work done by him as the managing agent and the servant of the company and no separate or additional remuneration may be provided for working as managing agent. On the other hand, if the managing agent does not happen to be a servant of the company, then the payment would be made, under the agreement, for the work done as managing agent and not as salary for services rendered by him as a servant. It thus appears to be clear that, under the Indian Companies Act, a managing agent may either be a servant of the company or a mere agent without being a servant. In this connection, the definition of manager may also be considered. Manager has been defined to mean, "a person who, subject to the control and direction of the directors, has the management of the whole affairs of a company, and includes a director or any other person occupying the position of a manager by whatever name called and whether under a contract of service or not." It is clear that there are only two main distinctions between a manager and a managing agent. The chief distinction is that a manager need only have the management of the whole affairs of the company whereas the managing agent is entitled to the management of the whole affairs of the company which means that any person, who actually happens to be managing the affairs in any capacity whatsoever, will be deemed to be a manager whereas to be a managing agent, he must be entitled, as of right, to the management of the affairs of the company, the right being granted by an agreement with the company. The second difference is that a manager must always work subject to the control and direction of the directors whereas the control and direction of the directors over the managing agent may be modified by the terms of the agreement.;