MALIK, C.J. - (1.) THIS is a reference under Section 21 of the Excess Profits Tax Act (XV of 1940) read with Section 66(1) of the Indian Income-tax Act (XI of 1922).
(2.) THE question referred to us reads as follows :- Whether in the circumstances of the case and on a true interpretation of the agreement dated 8th December, 1935, between the applicant and the Central Bank of India, the Tribunal were right in law in holding that the income earned by the former as a guarantee commission agent and as a treasurer was income from business as defined in Section 2(5) of the Excess Profits Tax Act ? There was an agreement entered into between the assessee and the Central Bank of Indian Ltd., on the 8th of December, 1935, and the assessee was appointed treasurer and guarantee commission agent of the Bank at Agra and at other branches. The agreement is printed at page 5 of the statement of the case. For his work as treasurer the assessee was to get a remuneration of Rs. 100 per mensem. The duties that he was to perform as treasurer are set out in several paragraphs of the agreement. In paragraph 2 it is provided that the assessee shall engage and employ all such subordinate cashiers, sircars, munshies, writers, cash keepers, potdars and peons as may be necessary for the efficient working of the various branches of the bank. These persons were to be under his control and he was entitled to dismiss and change them at his pleasure with this limitation that he could not employ any one who had not been approved by the bank and was bound to dismiss any one whom the managing director or the agent of the bank required him to dismiss. It is not necessary to give in detail his other duties and liabilities as treasurer but we may mention that he was responsible for the correctness and genuineness of all hundies and cheques bearing vernacular signatures and endorsements, etc., and any loss caused to the bank for any forged signature or endorsement or any other forged instrument which came into his hands or into the hands of the cash department staff. He was also responsible as treasurer for the safe custody of all bullion, coin, cash, bank and currency notes, promissory notes, hundies, etc. In short, the duties assigned to him were that as treasurer he was put in charge of the cash department and was to be held responsible for any loss caused to the bank by his conduct or the conduct of the cash department staff, and that he was to make good any loss caused to the bank by the cashing of forged cheques or other such instruments and for payment of money to a wrong party. The other work assigned to him was that of guarantee commission agent for which he was to get a commission. As a guarantee commission agent he had to recommend to the bank merchants and dealers who wanted to borrow money and if the bank accepted the names suggested, then they were termed approved borrowers. If any money was advanced to an approved borrower and he failed to repay the loan, the bank could realise the amount from the guarantee commission agent. The guarantee commission agent was required to furnish a sum of Rs. 75,000 as security which was liable to be replenished whenever it was reduced by reason of a loan advanced to an approved borrower having had to be adjusted against the security. Any legal proceeding against the borrower was to be instituted at the cost of the assessee. All expenses incurred by the assessee in making enquiries about the solvency of the borrowers before recommending them had to be spent by him and he could not claim repayment from the bank. The staff had to be engaged by the assessee with the approval of the banks agent of Agra and Delhi, and except for the previous approval at the time of appointment the assessee had complete control over the staff. The bank agreed to pay the salary of all the employees appointed by the assessee as treasurer or guarantee commission agent with the approval of the bank at the rate mentioned in paragraph 18 so that if the assessee employed the staff at a higher rate, then he was to pay the balance himself and if the pay was less than the pay mentioned in paragraph 18 of the agreement, then the amount was assessees own gain. The pay of the staff mentioned in paragraph 18, however, related only to the commission agency business, and for guaranteeing the work of the said staff the assessee was entitled to commission mentioned in paragraph 19.
(3.) THE staff to be engaged for the commission agency business detailed in paragraph 17 consisted of cashiers, godown keepers, clerks, chowkidars and peons, and paragraphs 18 and 19 give the pay allowable to only godown keeper and cashier combined, godown keeper, literate chowkidar and illiterate chowkidar and commission payable to the assessee for guaranteeing their work. Those four posts were held by men in the commission agency business and not in the cash department. Remuneration of the assessee is mentioned in paragraph 20. He was to get Rs. 100 for his work as treasurer and he was to get commission at a sliding scale for his work as guarantee commission agent.;