Judgment

BHAGWATI J. : These are two appeals from the judgment and decision of the High Court of Judicature at Hyderabad answering certain questions referred at the instance of the Appellants by the Commissioner of Excess Profits Tax, Hyderabad and adjudging the liability of the Appellants for excess profits tax in regard to the amounts received by them as remuneration from the Dewan Bahadur Ramgopal Mills Company Ltd. as its Agents.

2. The Mills Company was registered on the 14th February 1920 at Hyderabad in the then territories of His Exalted Highness the Nizam. The Appellants were registered as a private limited company at Bombay on the 1st March 1920. On the 20th April 1920 an Agency agreement was entered into between the Mills company and the Appellants appointing the Appellants its Agents for a period of 30 years on certain terms and conditions therein recorded. The Appellants throughout worked only as the Agents of the Mills Company and for the Fasli year 1351 and 1352 they received their remuneration under the terms of the agency Agreement. A notice was issued under Section 13 of the Hyderabad Excess Profits Tax Regulation by the Excess Profits Tax Officer calling upon the Appellants to pay the amount of tax appertaining to these chargeable accounting periods. The Appellants submitted their accounts and contended that the numeration received by them from the Mills Company was not taxable on the ground that it was not income, profits or gains from business and was outside the pale of the Excess Profits Tax Regulation.

This contention of the Appellants was negatived and on the 24th April 1944 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. 83,786 respectively and assessed the tax accordingly.

An appeal was taken by the Appellants to the Deputy Commissioner of Excess Profits Tax who disallowed the same. An application made by the Appellants under Section 48(2) for statement of the case to the High Court was rejected by the Commissioner and the Appellants filed a petition to the High Court under Section 48(3) to compel the Commissioner to state the case to the High Court. An order was made by the High Court on this petition directing the Commissioner to state the case and the statement of the case was submitted by the Commissioner on the 26th February 1946. Four questions were referred by the Commissioner to the High Court as under:

(1) Whether the Petitioner Company is a partnership firm or a registered firm?

(2) Whether under the terms of the agreement the Petitioner is an employee of the Mills Company or is carrying on business?

(3) Whether the remuneration received from the Mills is on account of service or is the remuneration for business?

(4) Whether the principle of personal qualification referred to in Section 2 clause (4) of the Excess Profits Regulation is applicable to the Petitioner Company?

These questions were of considerable importance and were referred for decision to the Full Bench of the High Court. The full Bench of the High Court delivered their judgment the majority deciding the questions (2) and (3) which were the only questions considered determinative of the reference against the Appellants. The Appellants appealed to the Judicial Committee. But before the Judicial Committee heard the appeals there was a merger of the territories of Hyderabad with India. The appeals finally came for hearing before the SC Bench at Hyderabad on the 12th December 1950 when an order was passed transferring the appeals to this Court at Delhi. These appeals have now come for hearing and final disposal before us.

3. The questions (1) and (4) which were referred by the Commissioner to the High Court at Hyderabad have not been seriously pressed before us. Whether the Appellants are a partnership firm or a registered company the principle of exclusion of the income from the category of business income by reason of its depending whol