Commissioner Of Income-Tax, Bombay North v. Tejaji Farasram Kharawala Ltd.

1. The question which arises on this reference is whether a certain amount received by the assessee during the accounting year, Samvat year 2004 (that is, 13th November, 1947, to 1st November, 1948), which is the previous year of the assessee for the assessment year 1949-50, is wholly exempt from tax under section 4(3) (vi) of the Income-tax Act. The assessee is a private Limited company of which at the material time there were four shareholder, three of them being directors. The assessee was incorporated on 28th October, 1946, and commenced business on 24th October, 1947, by acquiring from the joint family firm of Messrs. Tejaji Farasram Kharaawla, the business of selling agency of Ciba (India) Limited which was until then being carried on by the joint family firm. One Tejaji Farasram Kharawala was appointed selling agent by Ciba (India) Limited for sale of certain kinds of dye-stuffs in the territory described as the Ahmedabad District under an agreement dated 29th October, 1928. It was provided by this agreement that Tejaji Farasram Kharawala shall act for Ciba (India) Limited for sale of certain kinds of dye-stuffs for and on behalf of Ciba (India) Limited and that Ciba (India) Limited shall pay to Tejaji Farasram Kharawala 12 1/2% commission on the net sale proceeds of the dye-stuffs sold by him or Ciba (India) Limited. This Commission of 12 1/2 per cent. Included all contingency expenses which Tejaji Farasram Kharawala might have to incur in connection with the performance of his duties as selling agent of Ciba (India) Limited. It appears that the selling agency of Ciba Limited was taken by Tejaji Farasram Kharawala as manager and karta of the joint Hindu family which was carrying on business in the name of Messrs. Tejaji Farasram Kharawala and the agreement dated 29th October, 1928, was, therefore, treated as an agreement between Ciba (India) Limited and Messrs. Tejaji Farasram Kharawala. On 20th August, 1935, Ciba (India) Limited wrote a letter to Messrs. Tejaji Farasram Kharawala which was in the following terms :

"With reference to the conversation we had lately with your Mr. Bhagwanlal in connection with your commission, we wish to confirm hereby that the same is to be understood as follows :

7 1/2% your own commission.

5% being compensation in lieu of the contingency expenses you have to meet such as commission to dying masters, agents, etc., etc."

2. The selling agency of Messers. Tejaji Farasram Kharawala was thereafter continued on these terms and Messrs. Tejaji Farasram Kharawala received 7 1/2 per cent. as and by way of their own commission and 5 per cent. as and by way of compensation in lieu of the contingency expenses, such as commission to dying master, agents, etc., which they might be required to meet. This continued up to 24th October, 1947, when the assessee, by an agreement of that date, took over the business of Messrs. Tejaji Farasram Kharawala including the selling agency of Ciba (India) Limited together with the full benefit of the agreement dated 29th October, 1928, as modified from time to time. The assessee thereafter acted as selling agent of Ciba (India) Limited on the same terms and conditions and received 7 1/2 per cent. as and by way of commission and 5 per cent. as and by way of compensation in lieu of contingency expenses such as commission to dying masters, agents, etc. During Samvat year 2004, the amount received by the assessee in respect of 5 per cent. came to Rs. 1,90,538 and an expenditure of Rs. 1,32,512, was incurred by the assessee relatable to the purpose for which 5 per cent. was granted by Ciba (India) Limited. The assessee, in its assessment for the assessment year 1949-50, contended that the entire amount of Rs. 1,90,538 received by the assessee from Ciba (India) Limited during the account year was exempt from tax under section 4(3) (vi). The contention was negatived by the Income-tax Officer but the Appellate Assistant Commissioner upheld it and treated the entire amount of Rs. 1,90,538 as exempt from tax under section 4(3) (vi). The Commissioner thereupon carried the matter in appeal to the Tribunal. Before the Tribunal, two contentions were advanced on behalf of the Commissioner challenging the applicability of section 4(3) (vi) to the facts of the case. The first contention was that 5 per cent. did not represent a special allowance specifically granted to the assessee for the purpose of meeting any particular expenses withing the meaning of section 4(3) (vi). This contention was rejected by the Tribunal which took the view of that 5 per cent. was a special allowance specifically granted to the assessee for meeting contingency expenses such as commission to dying masters, agents, etc., which the assessee had to incur in the performance of its duties. It was then contended on behalf of the Commissioner that even if the other conditions of section 4(3) (vi) were satisfied, the assessee could not yet invoke the section in its favour since the assessee did not hold any office or employment of profit as required by the section. The Tribunal rejected this contention too, holding that the assessee, being the selling agent of Ciba (India) Limited for a particular territory, was the holder of an office of profit in the organization of Ciba (India) Limited and was, therefore, entitled to claim the benefit of the exemption granted by section 4(3) (vi) in respect of the amount of Rs. 1,90,538 received from Ciba (India) Limited. The Tribunal accordingly exempted the entire amount of Rs. 1,90,538 from tax under section 4(3) (vi). Here ended what we may call the first chapter in the history of this case.

3. The second chapter commenced with an application by the Commissioner to the Tribunal for referring to the High court a question of law which according to the commissioner arose out of the order of the Tribunal. The question which the Commissioner wanted to be referred by the Tribunal to the High Court was :

"Whether, on the facts of the case a portion, viz., 5 per cent. of the selling agency commission of 12 1/2% per cent. received by the assessee-company from Messrs. Ciba (India) Ltd., in the course of carrying on the selling agency business is exempt from tax under section 4 (3) (vi) of the Act ?"

4. The Tribunal, however, refused to refer this question to this High Court but instead referred the following question :

"Whether the assessee-company held an office or employment of profit within the meaning of section 4(3) (vi) of the Indian Income-tax Act ?"

5. The reference to the High Court was numbered as Income-tax Reference No. 28 of 1954. The reference at this stage comprised only one question, namely, that referred by the Tribunal. The Commissioner thereupon took out of motion praying that the statement of the case be referred back to the Tribunal with a direction to raise and refer to the High Court the aforesaid question which the Tribunal had refused to refer or such other question or questions as to the High Court might appear appropriate in the circumstances of the case, either in substitution of the question referred by the Tribunal or in addition thereto as the High Court might think fit. The reference came up for hearing and final disposal before a Division Bench of the High Court of Bombay consisting of Chagla C.J. and Tendolkar J. and the notice of motion was also placed for hearing along with reference. The notice of motion was dismissed by the High Court and the reference was disposed of by the High Court by deciding the question referred to it by the Tribunal in favour of the assessee on the basis of that decision. We shall occasion to point out later that in fact the decision in Tejaji Farasram Kharawalla's case could not possibly apply to the question referred by the Tribunal, for that question was neither argued nor decided by the High Court in that decision. But that is matter to which we shall advert a little later. The notice of motion having been dismissed and the reference having been decided in favour of the assessee, the Commissioner made an application to the High Court for leave to appeal to the Supreme Court. The application was rejected by the High Court whereupon the Commissioner preferred an application to the Supreme Court for special leave to appeal against the judgment and order of the High Court dismissing the notice of motion and deciding the reference in favour of the assessee. Special leave was granted by the Supreme Court and the appeal came up for hearing before the Supreme court on 8th November, 1960. From the judgment of the Supreme Court it appears that the dismissal of the notice of motion was attacked on behalf of the Commissioner and it was contended that the question which the commissioner wanted to be referred by the Tribunal to the High Court on the notice of motion was a question which arose out of the order of the Tribunal and that the High Court should have directed the Tribunal to state a case and refer the same. A preliminary objection was raised on behalf of the assessee to this contention of the Commissioner and it was urged that the inasmuch as the application for special leave to appeal to the Supreme Court was time-barred in so far as it was directed against the order dismissing the notice of motion, the appeal should not be entertained against the dismissal of the notice of motion. The preliminary objection was negatived by the Supreme Court and, on the merits, the Supreme Court came to the conclusion that the contention of the Commissioner was right and that mandamus should have been issued by the High Court directing the Tribunal to state a case on the question set out in the notice of motion. The Supreme Court concluded the judgment by passing the following order :

"In the result, the appeal is allowed and the case on the question raised in the notice of motion and to decide the question accordingly. Costs will be cost in the reference."

6. The order of the Supreme Court was thereafter drawn up in the following terms :

".... This COURT HOLDING that on the facts of the case the question of law, viz., 'whether, on the facts of the case, a portion, viz., 5%, of the selling agency commission of 12 1/2% received by the assessee-company from Messrs. Ciba (India) Ltd., or the portion thereof which was not expended in the course of the carrying on of the selling agency business is exempt from tax under section 4(3) (vi) of the Act' DOES arise for consideration out of the order, dated the 12th November, 1953, of the Income-tax Appellate Tribunal, Bombay Bench 'B', in I.T.A. No. 4901 of 1952-53 DOTH, in allowing the appeal, ORDER :

1. That the judgment and order, dated the 15th February, 1955, of the Bombay High Court dismissing the Notice of Motion in Income-tax Reference No. 28 of 1954 be and is hereby set aside and that the said High Court Do restore to its file the aforesaid Income-tax Appellate Tribunal, Bombay Bench 'B', to state a case for the opinion of the High Court on the question raised in the notice of motion and indicated hereinabove, viz., 'Whether, on the facts of the case, a portion, viz., 5%, of the selling agency commission of 12 1/2% received by the assessee-company from Messrs. Ciba (India) Ltd., or the portion thereof which was not expanded in the course of the carrying on of the selling agency business is exempt from tax under section 4(3) (vi) of the Act' ? and that the said High Court on receipt of the said statement of the case Do hear and dispose of the reference in accordance with law.

2. THAT the cost of this appeal SHALL be costs in the reference."

7. By the time the order was made by the Supreme Court, the state of Bombay was bifurcated and the matter, therefore, came to this court. Pursuant to the order of the Supreme Court this court Restored Reference No. 28 of 1954 and made an order in the reference directing the Tribunal to state a case for the opinion of this court on the question specified in the order of the Supreme Court and the Tribunal accordingly stated a case for the opinion of this court as directed by the order.

8. The reference is, therefore, now before us and we are called upon to dispose it of in accordance with law. The question which we have to answer on the reference is a comprehensive one and takes in various approaches and the learned Advocate-General accordingly advanced before us three different contentions covering practically all the approaches to the question. The first contention urged by the learned Advocate-General was that even if all the conditions of section 4(3) (vi) were satisfied, the assessee was entitled to exemption only in respect of the sum of Rs. 1,32,512 which was actually expended out of 5 per cent. received by it from Ciba (India) Limited. The contention was that on a true construction of section 4(3) (vi) the exemption which could be claimed under the section did not extend to the entire amount of the special allowance which might have been granted to the assessee for meeting expenses wholly and necessarily incurred in the performance of the duties of the office or employment of profit but was confined only to such part of the special allowance as was actually expended by the assessee for the purpose. The Learned Advocate-General frankly conceded that, in view of the decision of the High Court of Bombay in Tejaji Farasram Kharawalla's case, it was not possible for him to press this contention but at the same time he did not wish to give ti up since the case might proceed to a higher court. In this case the High Court of Bombay constructed section 4(3) (vi) and held that, if the object or purpose for which a grant is made to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit the assessee is entitled to exemption in respect of the whole of the grant under section 4(3) (vi) and it is not necessary for the assessee to prove further that he had expended the grant for the purpose for which it was given. We may point out that as a result of this decision the legislature amended section 4(3) (vi) by adding at the end of the section of the word "to the extent to which such expenses are actually incurred for that purpose" so as to make it clear that what was intended to be exempted under the section was not eh whole of the special allowance but only such part of it as was actually expended for the purpose, but the amendment came into force from 1st April, 1955, and the section with which we are concerned in the present reference is the unamended section which was construed by the High Court of Bombay in this decision. This decision, therefore, binds us and following it, we reject the present contention of the learned Advocate-General.

9. It was then contended by the learned Advocate-General that in any event 5 per cent. received by the assessee from Ciba (India) Limited did not represent a special allowance specifically granted to the assessee for meeting contingency expenses, such as, commission to dying masers, agents, etc., and was, therefore, not withing the scope and ambit of section 4 (3) (vi). The argument of the Learned Advocate-General was that under the agreement dated 29th October, 1928, the commission payable to the selling agent was 12 1/2 per cent. inclusive of contingency expenses which were to be borne by the selling agent and when the letter dated 20th August, 1935, was addressed by Ciba (India) Limited to the selling agent, all that happened was that Ciba (India) Limited agreed that out of the Commission of 12 1/2 per cent. which would be paid to the selling agent, the selling agent may treat 7 1/2% as his own commission and 5 per cent. as compensation in lieu of contingency expenses, but that so far as Ciba (India) Limited was concerned, the commission would be 12 1/2%. The learned Advocate-General relied very strongly on the words "understood" and "same" occurring in the following sentence in the letter dated 20th August, 1935 : "With reference to the conversation we had lately with your Mr. Bhagwanlal in connection with your commission, we wish to confirm hereby that the same is to be understood as follows." The contention of the learned Advocate-General is in our view not will-founded and must be rejected. It is undoubtedly true that under the agreement dated 29th October, 1928, the commission payable by Ciba (India) Limited to the selling agent was 12 1/2% and the selling agent was liable to bear all contingency expenses but that agreement was modified by the letter dated 20th August, 1935, and the commission of 12 1/2 per cent. was split up into two parts, namely, 7 1/2% being the commission of the selling agent and 5 per cent. being by way of compensation in lieu of contingency expenses such as commission to dyeing masters, agents, etc., required to be met by the selling agent. By the letter dated 20th August, 1935, it was clearly agreed between Ciba (India) Limited and the selling agent that the commission of the selling agent would be only 7 1/2 per cent. and that 5 per cent. would be by way of compensation in lieu of contingency expenses such as commission to dyeing masters, agents, etc., which the selling agent may be required to meet in the course of performance of its duties. It is no doubt true that the words used in the letter dated 20th August, 1935, were that commission was to be understood in the manner therein set out but what followeds thereafter made it clear that what was intended to be achieved by the said letter was a modification of the agreement dated 29th October, 1928, in that the commission of the selling agent would thereafter be 7 1/2 per cent. and the that 5 per cent. would represent not the commission of the selling agent but compensation in lieu of contingency expenses such as commission to dying masters, agents, etc. It would not, therefore, be correct to say that 5 per cent. also represented part of the commission of the selling agent and bore the same character as 7 1/2 per cent. which was admittedly the commission of the selling agent. Once this position is reached, namely, that after the letter dated 20th August, 1935, the commission of the selling agent was 7 1/2 per cent. was given to the selling agent by way of compensation in lieu of contingency expenses, such as, commission to dying master, agents, etc., which the selling agent may be required to meet in the course of performance of its duties, the conclusion becomes inescapable that 5 per cent. Represented a special allowance specifically granted to the assessee for meeting those expenses. The use of the word "compensation" clearly indicates that 5 per cent. was given to the selling agent in order to enable the selling agent to meet contingency expenses which were required to be incurred by the selling agent in performance of tis duties and it was, therefore, obviously a special allowance granted specifically to the selling agent for the purpose of meeting such expenses. This contention of the Learned Advocate-General must, therefore, be rejected.

10. The next contention urged by the learned Advocate-General was that in any event the assessee could not be said to hold an office or employment of profit within the meaning of section 4(3) (vi). To this contention a preliminary objection was raised on behalf of the assessee by Mr. B. G. Thakore. Mr. B. G. Thakore urged that the question whether the assessee held an office or employment of profit withing the meaning of section 4(3) (vi) was referred by the Tribunal to the High Court and the High Court by its judgment and order dated 15th February, 1955, answered the question in favour of the assessee and though an appeal was taken to the Supreme Court by special leave, the Supreme Court did not disturb the answer given by the High Court and the answer, therefore, became final and was not liable to the challenged by the Commissioner. Mr. B. G. Thakore agreed that the decision of the High Court on the reference was challenged in the appeal preferred to the Supreme court, but he pointed out that no contention was urged before the Supreme Court challenging the view of the High Court on the question referred by the Tribunal and the answer was given by the High Court to the question, therefore, became binding on the Commissioner and could no longer be assailed by him. Mr. B. G. Thakore thus sought to invest the answer given by the High Court to the question with a character of finality but it is clear that in this attempt he must fail. The whole edifice of the argument was built on the foundation that an appeal was taken to the Supreme Court by the Commissioner against the decision of the High Court on the reference, but the Commissioner did not attack the answer given by the High Court to the question referred by the Tribunal at the time of the hearing of the appeal before the Supreme Court and the answer of the High Court was, therefore, impliedly confirmed by the Supreme Court and was consequently beyond challenge by the Commissioner. But the foundation itself is in our opinion weak and the crumbling and cannot bear the weight of logic and argument. Let us examine what the position was when the appeal was preferred to the Supreme Court and what the Supreme Court actually did on the appeal. When the reference came up for hearing and final disposal before the High Court, it comprised only one question, namely, that referred by the Tribunal. But there was also along with the reference the notice of motion taken out by the Commissioner for referring the case back to the Tribunal with a direction to raise and refer another question either in substitution of or in addition to the question referred by the Tribunal. If the notice of motion had been allowed by the High Court, the reference as it stood could not have proceeded before the High Court, for in that event the question suggested by the Commissioner would have either supplanted the question referred by the Tribunal or become an additional question required to be answered before the reference could be disposed of. The notice of motion was, however, dismissed and the reference comprising only one question, namely, that referred by the Tribunal was disposed of by the High Court by answering the question in favour of the assessee. The Commissioner thereupon appealed. There was one single appeal presumably because the order dismissing the notice of motion and disposing of the reference was one single order as finally drawn up by the High Court, the attack, as appears from the Judgment of the Supreme Court, was first directed against the dismissal of the notice of motion. It was contended on behalf of the Commissioner that the notice of motion was wrongly dismissed by the High Court since the question which the Commissioner wanted to raise did arise out of the order of the Tribunal and should have been directed to be referred by the Tribunal to the High Court. The Supreme Court took the view that the contention of the Commissioner was well-founded and that the question suggested by the Commissioner should have been raised by the High Court. Now the Reference was already disposed of by the High Court by answering the only question forming the subject-matter of the reference in favour of the assessee. Unless, therefore, the reference was restored, the question suggested by the Commissioner could not be directed to be referred by the Tribunal. The Supreme Court, therefore, while setting aside the order of the High Court dismissing the notice of motion, directed with a view to giving effect to its decision, that the High Court should restore the reference and make an order in the reference directing the Tribunal to state a case for the opinion of the High Court on the question suggested by the Commissioner. But once this view was taken by the Supreme Court and the reference was restored with a direction to raise the question suggested by the Commissioner in the reference, the validity of the answer given by the High Court to the question referred by the Tribunal could not be canvassed before the Supreme Court on the appeal, for the answer to the question referred by the Tribunal then became just like an answer to one of many question comprised in a reference where the other question still remain to be answered. The position which came into being as a result of the order of the Supreme Court on the Notice of motion was that the reference then comprised two questions, one being the question referred by the Tribunal and the other being the question directed to be raised by the Supreme Court, and though the former question was answered by the High Court, the latter remained to be answered and there could not, therefore, be an appeal to challenge the answer of the High Court on the former question until the reference was disposed of by the answer to the latter question. It was quite possible that the latter question might be answered in favour of the Commissioner in which event the Commissioner would have no cause of preferring an appeal to the Supreme Court, therefore, could not and did not go into the question referred by the Tribunal but merely restored the reference so that the question suggested by the Commissioner might be raised and answered by the High Court and the reference might be dispoised of. It was only if the reference was ultimately disposed of against the Commissioner that the commissioner could, in an appeal preferred to the Supreme Court, attack the validity of the answer given by the High Court to the question referred by the Tribunal. We cannot, therefore, accede to the contention of Mr. B. G. Thakore that the answer given by the High Court to the question referred by the Tribunal was impliedly confirmed by the Supreme Court or that it became final and immune from challenge by the Commissioner.

11. But Mr. B. G. Thakore then contended that in any event the answer given by the High Court to the question referred by the Tribunal was binding so far as this court was concerned and it was not competent to the Commissioner to reagitated that question afresh before this court. There is in our opinion considerable force in this contention. As a matter of fact its validity flows directly from what we have said above in regard to the true position emerging from the order of the Supreme Court. The notice of motion having been allowed and the reference restored by the Supreme Court, the reference comprised two questions one being the question suggested by the Commissioner and specified in the order of the Supreme Court. The former question was answered by the High Court when the reference was originally disposed of while the latter question remained to be answered. When the reference was restored, the Supreme Court did not set aside the answer of the High Court on the question referred by the Tribunal nor did the Supreme Court direct that that question be considered afresh. The answer of the High court to the question referred by the Tribunal remained and the High Court was directed to raise the additional question specified in the order of the Supreme Court and to dispose of the reference. If the additional question, the reference being disposed of against the Commissioner, the commissioner could then prefer an appeal to the Supreme Court and challenge the decision of the reference against him on both the question. If on the other hand the additional question was decided in favour of the Commissioner, the Commissioner would have no grievance, for he would have succeeded on the reference and in that event he would have no cause to file an appeal. On the contrary, the assessee would be aggrieved by the ultimate decision on the reference and he would be entitled to file an appeal challenging the validity of the answer to the additional support the decision of the reference by contending that the original question was wrongly decided against him. If this be the correct position, it is clear that the Commissioner cannot ask us to reconsider the question originally referred by the Tribunal and decided by the High Court. The learned Advocate-General, however, contended that this was not a correct way of looking at the order of the Supreme Court. The question which the Supreme Court. The question which the Supreme court directed to be raised and referred by the Tribunal was, argued the learned Advocate-General, a comprehensive one covering the original question referred by the Tribunal and that consequently when the Supreme Court restored the reference and directed the larger question to be raised, that was in substitution of the original question and original question was, therefore, set aside along with the answer given to it by the High Court and High Court was competent to go into all aspects of the larger question including the respect covered by the original question. The learned Advocate-General also relied on the words "the appeal is allowed" occurring in the last paragraph of the judgment of the Supreme Court. Now what we have said above affords a complete answer to this contention of the learned Advocate-General. What the Supreme Court did by its order was not to substitute the question specified in the order for the question originally referred by the Tribunal. Nowhere in the order do we find any direction given by the Supreme Court that the question specified by it was to be raised in substitution of the question originally referred by the Tribunal. Even from the judgment we do not find that the contention urged on behalf of the Commissioner and accepted by the Supreme Court was that the question suggested by the Commissioner should be raised in the substitution of the original question. There is also nothing in the order to suggest that the Supreme Court set aside the answer given by the High Court to the question originally referred by the Tribunal which would necessarily be the consequences of accepting the argument of the learned Advocate-General. The argument of the learned Advocate-General amounts to this, namely, that the Supreme Court by its order gave what we may call a second innings to the Commissioner on the narrow question which was already referred by the Tribunal and determined by the High Court. Unless there is anything in the order of the Supreme Court which clearly and unmistakably points to this conclusion, which there is obviously not, we do not think the Commissioner can reagitate before us the question referred by the Tribunal and answered by the High Court. Unless there is anything in the order of the Supreme Court which clearly and unmistakably points to this conclusion, which there is obviously not, we do not think the Commissioner can reagitate before us the question referred by the Tribunal and answered by the High Court by its judgment and order dated 15th February, 1955.

12. On the assumption, however, that the contention of the learned Advocate-General in this behalf was right, we decided to go into the merits of the question since not to do so might involve further possible delay in the final disposal of the case - already sufficiently protracted - which might be occasioned by a possible remand if our view turned out to be incorrect. The question is : whether the assessee held an office or employment of profit within the meaning of section 4(3) (vi) ? Now this question was, as we have pointed out above, decided by the High Court of Bombay when the reference was originally disposed of on 15th February, 1955, and the decision of the High Court of Bombay was relied upon by Mr. B. G. Thakore as a judicial precedent binding upon us in the decision of the High Court of Bombay, we find that it is based solely on the previous decision in Tejaji Farasram Kharawalla's case Chagla C.J., delivering the judgment of the court, observed that the question which arose on the reference was covered by the decision of the High Court in Tejaji Farasram Kharawalla's case and that there was no distinction between the position which arose in that case and the position in the case before them and, following that decision, the High Court took the view that the assessee held an office or employment of profit within the meaning of section 4(3) (vi). But when we examine the decision in Tejaji Farasram Kharawalla's case, we find that no such question was raised before the court and much less discussed or decided. The only question in that case was whether the whole of the special allowance was entitled to exemption under section 4(3) (vi) irrespective of the fact whether it was actually expended for the purpose for which it was granted or whether only such part of the special allowance as was actually spent could be exempted under the section. Mr. G. N. Joshi who appeared on behalf of the Commissioner did not even attempt to argue that the assessee did not hold an office or employment of profit and there was accordingly no occasion for the court to consider that question. We cannot, therefore, regarded the decision given by the High Court of Bombay on 15th February, 1955, on the present reference binding upon us as a judicial precedent and we must proceed to consider the question on its own merits.

13. What then is the true meaning of the expression "office or employment of profit" occurring in section 4(3) (vi) ? The Learned Advocate-General contended that in the context and collocation of the words used in the section, the word "employment" took its colour from the preceding word "profit" and that the expression "office or employment of profit" meant a subsisting, permanent, substantive position, which had an existence independent of the person who filled it. The Learned Advocate-General relied on certain decisions of the courts in England on the construction of similar words used in the English income-tax statutes. We shall presently examine these decisions, but may point out at the outset, as was done by the Allahabad High court in In re Mamanchand Fakirchand, that the language of the English and Indian Income-tax Act is not exactly similar and that much assistance cannot be derived from English decisions for the construction of the language employed in the Indian Income-tax Act.

14. The first decision to which the Learned Advocate-General called our attention was the decision of the Horridge J. In Pickles v. Foster. This was a case under the English Income-tax Act, 1842. rule 3 of the Rules relating to schedule E in section 146 of the Act provides that the duties of income-tax "shall be paid on all public offices and employments of profit within" the United Kingdom. The enumeration of public offices and employment of profit included "officer or employment of profit held... under any company or society, whether corporate or not corporate." The assessee was an agent of an English company in West Africa. The question was whether the assessee was liable to be charged in respect of his employment under Schedule E. Horridge J. did not decide but assumed that the employment of the assessee was an employment of profit within the meaning of rule 3, but held the assessee to be outside Schedule E since the employment of the assessee was exercised wholly outside the United Kingdom and could not, therefore, be said to be within the United Kingdom as required by the rule. Since this decision proceeded on the assumption that the employment of the assessee was an employment of profit within the meaning of rule 3, it is of no help to us in determining the question as to what meaning should be given to the words "office or employment of profit" occurring in section 4(3) (vi).

15. The learned advocate-General also cited before us a decision of Rowlatt J. in Great Western Railways Company v. Bater. That was also a case which was sought to be brought withing the Schedule E by the Crown. The assessee was a railway company and one Hall was a clerk in the employ of the assessee. Section 6 of the English Income Tax Act, 1860, made a railway company assessable to "duties payable under Schedule E in respect of all offices and employments of profits" held in or under the railway company. The question which arose for decision was whether by virtue of section 6, the assessee was liable to be assessed to tax under Schedule E in respect of the salary of Hall. The contention of the Crown was that Hall held an office or employment of profit falling within Schedule E as explained by the third rule in section 146 of the English Income-tax Act, 1842, and that the salary of Hall was, therefore, liabled to be assessed in the hands of the assessee. Rowlatt J., who heard the case, was inclined to take the view that words "office or employment of profit" as used in the English Income Tax Act, 1842, were intended to refer to an office or employment which was a subsisting, permanent, substantive position, which had an existence independent of the person who filled it, and which went on and was filled in succession by successive holders and if this position was correct, Hall could not be said to be falling within Schedule E - but feeling himself bound by Attorney-General v. Lancashire and Yorkshire Ry. Co., in which it was common ground that permanent official doing clerical work held public offices, the learned judge held that Hall was a holder of office or employment of profit within the meaning of Schedule A and was, therefore, assessable under that Schedule and that consequently the assessee was liable to be assessed in respect of the salary of Hall. This decision was upheld by the Court of Appeal but the House of Lords by a majority judgment, Lord Buckmaster dissenting, reversed it. The decision of the House of Lords is reported in Great Western railway Co. v. Bater. The main ground on which the majority Law Lords rested the decision was that on a true construction of rule 3 of the Rules relating to Schedule E in section 146 of the English Income Tax Act, 1842, the several offices and employment of profit enumerated therein were public offices or employments of a public nature and since Hall was not the holder of a public office or employment of profit of a public nature, he was not assessable under Schedule E and the assessee was accordingly not liable to be taxed in respect of the salary of Hall. Lord Atkinson also considered the question as to what was the true connotation of the words "office or employment of profit" as used in rule 3 and relied upon certain rules contained in section 146 as throwing light on the interpretation of those words. Rule 1 provided :

"The duties (i.e., the tax) shall be annually charged upon the persons respectively having using or exercising the officer or employment of profit mentioned in Schedule E, or to whom the annuities, pensions or stipends mentioned in the same Schedule shall be payable for all salaries, fees, wages, perquisites or profits whatsoever accruing by reason of such offices, employments or pensions after making the deduction named."

16. This rule was followed by a provision, which was in the following terms :

"Each assessment, in respect of such offices or employments shall be in force for one year, and shall be levied for such year without any new assessment, notwithstanding a change may have taken place in any such officer or employment, on the person for the time being having or exercising the same."

17. There was a proviso to this provision and that proviso reads as follows :

"Provided that the person quitting such office or employment, or dying within the year, or his executors or administrators, shall be liable for the arrears due before or at the time of his so quitting such office or employment, or dying, and for such further portion of time as shall then have elapsed, to be settled by the respective Commissioners, and his successor shall be repaid such sum as he shall have paid on account of such portion of the year as aforesaid."

18. The effect of these provisions clearly was that where there was a change in the person holding the office or exercising the employment during the year of assessment, the tax was to be assessed upon the person holding the office or exercising the employment at the time the assessment was made, but an adjustment was to be subsequently made between the persons holding the office or exercising the employment during the year of assessment so that the person assessed would ultimately have to pay tax only on the salary earned by his predecessor or predecessors. After referring to these provisions, Lord Atkinson observed that under the scheme of the Rules the entire year of assessment was treated "as a unit of service, and the salary as a unit of recompense, not an aggregate of a number of a smaller sums payable at different times, and each recompensing the service rendered during an independent fraction of the year" and that the word "successor" was very significant and indicated continuity of the office or employment and also "the existence of something external to the person who might hold the one or exercise the other" Lord Atkinson then expressed his concurrence with the following passage from the jugment of Rowlatt J.

"It is argued, and to my mind argued most forcibly, that that shows that what those who used the language of the Act of 1842 meant when they spoke of an office or an employment of profit, was an office or employment which was a subsisting, permanent, substantive position, which had an existence independent of the person who filled it, which went on and was filed in succession by successive holders, and that if a man was engaged to do any duties which might be assigned to him, whatever the terms of which he was engaged, his employment to do those duties were attached; he was merely employed to do certain things, and the so-called office or employment and merely the aggregate of the activities of the particular man for the time being. I myself think that that contention is sound, but having regard to the state of the authorities I do not think I ought to give effect to that contention. My own view is that Parliament in using this language in 1842 meant by an office a substantive thing that existed apart from the holder of the office."

19. The learned Advocate-General relied very strongly on these observations and contended that as in the English Income Tax Act, 1842, so also in the Indian Income-tax Act, 1922, the words "office or employment of profit" referred to an office or employment which was subsisting permanent, substantive position, which had an existence independent of the person who filled it, and which went on an was filled in succession by successive holders. But this contention is in our opinion without force. We cannot put upon the words "office or employment of profit" in section 4(3) (vi) the same meaning which was given to those words in rule 3 of section 146 of the English Income Tax Act, 1842. It was by reson for the peculiar provisions of the English Income Tax Act, 1842, set out above that Lord Atkinson held that the words "officer or employment of profit" in rule 3 referred to an office or employment which had continuity and which existed apart from the person who held it. Such provision are absent in the Indian Income-tax Act and decision on the construction of the words used in the English Income Tax Act, 1842, cannot, therefore, help us in arriving at a true construction of the words used in the Indian enactment. This view, we find, has also been taken by the a Division Bench of the High Court of Bombay to which My Lord the Chief Justice was a party in Deorao Laxman v. Keshav Laxman. There also Chainani J., as he then was, delivering the judgment of the court, held that a special meaning was given to the words "office or employment of profit" as used in the English Income Tax Act, 1842, having regard to the language of the Act and the context in which the words occurred. This decision of the House of Lords cannot, therefore, be regarded as an authority which should compel us to construe the words "office or employment of profit" occurring in section 4(3) (vi) in the manner suggested by the learned Advocate-General.

20. The learned Advocate-General then relied on the decision of the House of Lords in MacMillan v. Guest. In that case the question was whether a director of an English Company, which was resident in the United Kingdom could be said to hold a public office within the United Kingdom could be said to hold a public office within the United Kingdom so as to be liable to be charged to tax in respect of his income as such director under Schedule E to the Income Tax Act, 1918. The rules under Schedule E to the Indian Income Tax Act, 1918, contained the same provisions which were contained in the Rules relating to Schedule be in the English Income Tax Act, 1842, and which were relied upon by Lord Atkinson in the judgment in Great Western Railway Company's case to which we have just referred. Lord Atkin while discussing the question whether the director could be said to be holding an office within the meaning of Schedule E approved the meaning of the Words "office or employment of profit" given by Rowlatt J. and adopted by Lord Atkinson in Great Western Railway Company's case in the following words :

"Without adopting the sentence as a complete definition, one may treat the following expression of Rowlatt J. In Great Western Ry. Co. v. Bater adopted by Lord Atkinson in that case, as a generally sufficient statement of the meaning of the word : 'an office or employment which was a subsisting, permanent, substantive position, which had an existence independent of the person who filled it, which went on and was filled in succession by successive holders'. There can be no doubt, that the director of a company holds such an office as is described."

21. Lord Wright also observed :

"The word 'office' is indefinite content. Its various meaning cover four columns of the New English Dictionary, but I take as the most relevant for purposes of this case the following : 'A position or place to which certain durties are attached, especially one of a more or less public character."

22. Now there is no doubt that these observations of Lord Atkin and Lord Wright clearly show that the words "office or employment of profit" as used in Schedule E to the English Income Tax Act, 1918, meant an office or employment which had some degree of permanence and continuity and which could be said to exist independently of the person who filled it. But the question again is : Does this meaning given to these words as used in section 4(3) (vi) of the Indian Income-tax Act, 1922. This case was, as we have pointed out above, a case under Schedule E to the English Income Tax Act, 1918. We have seen the rules under Schedule be to the English Income Tax Act, 1918, and we find that these rules contained the same provisions which were contained in Schedule E to section 146 of the English Income Tax Act, 1842, and which were relied upon by Lord Atkinson for taking the view set out above. There is no doubt therefore that it was in the context of these rules that the words "office or employment of profit" were construed by Lord Atkinson and Lord Wright to mean an office or employment which has subsisting, permanent, substantive position and which has an existence independent of the person who fills it. The same ground on which we declined to regard the decision of House of Lords in Great Western Railway Company's case as applicable to the construction of the wards "office or employment of profit" in section 4(3) (vi) must also apply in relation to the decision of the House of Lords in this case.

23. These decisions of the English courts based on the interpretation of the words "office or employment of profit" occurring in the English Income Tax Act being our of the way, let us consider what those words in the Indian enactment must mean. Now fortunately the decision of the Bombay High Court in Deorao Laxman v. Keshav Laxman, to which we have just referred, considerably helps us in arriving at the true meaning of these words. That was a case which involved in the construction of the words "office of profit" occurring in article 191(1)(a) of the Constitution. It was contended on behalf of the appellant in that case that, in order to constitute an office, there must be a post or position, the existence of which is independent of the person who fills it and that since the appellant did not hold any such post or position, the appellant could not be said to the holder of any office or profit. Considerable relance was placed on the decisions of the English Court which we have discussed above. The High Court of Bombay took the view that those decision were based on the language used in those acts and that the special meaning given to these words in those decisions could not be imported for the purpose of restricting the ordinary meaning of the word "office" which would include any occupation or position. Chainani J., as he then was, summed up the conclusion in the following words :

"The word 'office' does not, therefore, necessarily imply that it must have an existence apart from the person, who may hold it. Cases are known, in which, in order to make use of the special knowledge, talent, skill or experience of certain persons, posts are created, which exist only for so long as they hold them. It will be difficult to hold that such person are not holders of offices. We are, therefore, unable to accept Mr. Chari's contention that the appellant does not hold an office, because the post of an insurance medical practical practitioner, which he holds, will cease to exist as soon as he gives it up or because other persons cannot be appointed to it."

24. We do not see any reason why the words "office or employment of profit" in section 4(3) (vi) must bear any different or restricted meaning. There is nothing in the scheme of the sections of the Income-tax Act which compels us to narrow down the plain and natural meaning of the words "office or employment of profit" as used in section 4(3) (vi). The plain grammatical meaning of these words appears to be that whatever an assessee hold any position or place or employment of profit, section 4(3) (vi) must apply. It is not necessary that such office or employment must have an independent existence apart from the assessee who fills it or that it must have any attribute of permanence so that it must continue to exist even apart from the assessee. An Office or employment may be created for the first time by appointing a person to it and such office or employment would be within the meaning of section 4(3) (vi). The assessee in the present case was the selling agent of Ciba (India) Limited for a particular defined territory and it is really difficult to see how it can be said that a selling agent of a company for a particular defined territory does not hold an office of profit under the company. It is no doubt true, as contended by the learned Advocate-General, that a selling agent is not an employee of the company and cannot, therefore, be said to be holding an employment of profit under the company. But a selling agent could certainly be said to be holding an office of profit under the company as much as director or a managing director would be doing. It does not matter that there is no permanent officer of a selling agent created by a resolution passed by the company. It would be enough if a person is appointed to be a selling agent of the company and, if that is done, he would be holding the office of selling agent of the company.

25. This view which we are inclined to take is considerably strengthened by a reference to sections 204 and 314 of the Companies Act, 1956. It is clear that the words "office of profit" as sued in these sections include an office or profit which is not a subsisting, permanent, substantive position, having an existence independent of the person who fills it. Even a legal or technical adviser can be said to hold an office of profit within the meaning of these sections and so also a managing director or managing agent. A person may be appointed legal or technical adviser or managing director or managing agent for the first time : there may be no subsisting, permanent, substantive position of legal or technical adviser, managing director or managing agent existing or created and yet he would be holding an of profit within the meaning of these sections. Equally a selling agent would be holding such office of profit. Now, if a selling agent can be said to be holding an office of profit under the company for the purpose of the Companies Act, it is difficult to see why he cannot be said to be holding an office of profit under the company when we refer to the Income-tax Act. Just as in the Companies Act, the words "office of profit" are used according to their plain and natural meaning and not in a narrow and restricted sense, so also in the Income-tax Act these words are used in their planing and natural sense and must not be interpreted in any narrow or constricted manner. We are, therefore, of the opinion that the assessee in the present case held an office of profit within the meaning of section 4(3) (vi).

26. In the result our answer to the question referred by the Tribunal pursuant to the order made by this court on 9th October, 1962, is in the affirmative. The Commissioner will pay the costs of the assessee.

27. Question answer in the affirmative.

Income-tax Act.