Contracts Cases

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1. Lakshminarayan Ram Gopal and Son Ltd V. The Government of Hyderabad, AIR 1954 SC 364
FACTS:
An Agency agreement was entered into between the Mills Company and the appellants appointing the appellants it’s Agents for a period of 30 years. The appellants throughout worked only as the Agents of the Mills Company and for the Fasli years 1351 and 1352 they received their remuneration under the terms of the Agency agreement. Notice was sent to the appellants to pay the amount of tax appertaining to these chargeable accounting periods. The appellants submitted their accounts and contended that the remuneration received by them from the Mills Company was not taxable on the ground that it is was not income, profits or gains from business and was outside the pale of the Excess Profits Tax Regulation. The Excess Profits Tax Officer made an order assessing the income of the appellants for the accounting periods 1351 and 1352 Fasli at Rs. 8,957 and Rs. 83,768 respectively and assessed the tax accordingly. ISSUES:

1. Whether under the terms of the agreement the petitioner is an employee of the Mills Company or is carrying on business? 2. Whether the remuneration received from the Mills is on account of service or is the remuneration for business? ANALYSIS OF THE FACTS:

1. The appellants were registered as a private limited company having their registered office in Bombay and the objects for which they were incorporated were the following : To act as agents for Governments or Authorities or for any bankers, manufactures merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business. 2. Under the Articles of Association of the Mills Company the appellants and their assigns were appointed the agents of the Company. The general management of the business of the Company subject to the control and supervision of the Directors, was to be in the hands of the Agents of the Company. They were to have power to appoint and employ in or for the purposes of the transaction and management of the affairs and business of the Company. The agents were authorized to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them. 3. The Agency agreement which was executed provided that the appellants and their assign were to be the Agents of the Company for a period of 30 years from the date of registration of the Company and they were to continue to act as such agents until they of their own will resigned. 4. The remuneration of the appellants as such Agents was to be a commission of 2 1/2 per cent on the amount of sale proceeds of all yarn cloth and other produce of the Company. The appellants were to be paid in addition all expenses and charges actually incurred by them in connection with the business of the Company and supervision and management thereof. JUDGMENT:

1. "An agent is to be distinguished on the one hand from a servant, and on the other from an independent contractor. A servant acts under the direct control and supervision of his master, and is bound to conform to all reasonable orders given him in the course of his work; an independent contractor, on the other hand, is entirely independent of any control or interference and merely undertakes to produce a specified result, employing his own means to produce that result. An agent, though bound to exercise his authority in accordance with all lawful instructions which may be given to him from time to time by his principal, is not subject in its exercise to the direct control or supervision of the principal. An agent, as such is not a servant, but a servant is generally for some purposes his master's implied agent, the extent of the agency depending upon the duties or position of the servant." 2. 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...
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