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Commissioner Of Income-Tax, Bombay City v. Mrs. Durga Khote
Factual and Procedural Background
The assessee, Mrs. Durga Khote, a well-known film actress, entered into various contracts in the year 1944 with several film companies to act in different films for fixed remuneration. The Department contended that her income should be treated as "salaries" under Section 7 of the Income-tax Act, implying an employer-employee relationship. The assessee argued that her income arose from the practice of her profession as a film actress and thus should be assessed under Section 10. The Tribunal upheld the assessee's contention, leading to this reference for determination of the correct section under which her income should be computed.
Legal Issues Presented
- Whether the assessee's income falls to be computed under Section 7 or Section 10 of the Income-tax Act.
Arguments of the Parties
Department's Arguments
- The contracts between the assessee and the film companies establish a master-servant relationship.
- If such a relationship exists, the assessee is a salaried servant and her income is "salaries" under Section 7.
Assessee's Arguments
- The income arises from the practice of her profession as a film actress.
- The contracts were temporary engagements incidental to the practice of her profession, not permanent employment.
- She did not exchange her profession for service and was free to work with any company after the contracts ended.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Davies v. Braithwaite, (1983) 18 Tax Cas. 198 | Distinction between employment and professional engagements; series of temporary engagements in a profession do not constitute employment. | Used to support the proposition that an actress engaged temporarily does not become a salaried employee but is practising her profession through successive engagements. |
Court's Reasoning and Analysis
The Court analyzed whether the relationship between the assessee and the film companies was that of master and servant or a professional engagement. It emphasized that merely establishing a master-servant relationship in contractual terms is insufficient to classify income as salary when the person is practising a profession. The Court noted that temporary engagements incidental to the profession do not amount to permanent employment or surrendering the profession. Mrs. Durga Khote’s contracts were temporary and allowed her freedom to engage with other companies, indicating she continued practising her profession rather than becoming an employee. The Court relied on the English precedent in Davies v. Braithwaite, where it was held that a series of engagements in a profession do not amount to employment. The Court rejected the Department’s analogy that a professional like a lawyer becomes an employee when hired for a case, affirming that such professionals remain practitioners of their profession. Consequently, the Court concluded that the assessee’s income should be computed under Section 10 of the Income-tax Act.
Holding and Implications
The Court held that the assessee's income must be computed under Section 10 and not under Section 7 of the Income-tax Act.
The direct effect of this decision is that income earned by a film actress through temporary contracts in the course of practising her profession is not to be treated as salary income but as professional income. The Court did not set any new precedent beyond affirming existing principles regarding the distinction between employment and professional engagements. The Commissioner was ordered to pay the costs of the reference.
Chagla, C.J:— The only question that arises on this reference is whether the assessee's income falls to be computed under S. 7 or S. 10, Income-tax Act. The assessee Mrs. Durga Ehote is admittedly a well-known film actress. In the year of account which is 1944 she entered into various contracts for serving with several film companies and the contracts were to the effect that her services were lent for the purposes of acting in different films at a certain remuneration fixed in the contracts. The contention of the Department was that her income represented “salaries” paid by the various film companies and she should show her return under S. 7 and not under S. 10. On the other hand, the contention of the assessee was that her income arose out of the practice of her profession, which was that of a film actress, and therefore, her return was rightly shown under S. 10. The Tribunal upheld the contention of the assessee.
2. Mr. Joshi's contention is that if you look at the terms of the contracts, it is clear that a relationship of master and servant is established between the film companies and the assessee, and according to him if that relationship is established, then the assessee is a salaried servant of the film companies and the income she received was in the nature of her salaries. Now, the mere establishment of relationship of master and servant is not sufficient when we are dealing with a person who is practising a profession, because in the course of the practice of that profession it may become necessary for the person to get himself or herself engaged to a particular master temporarily. But even while he or she is so engaged, he or she is really practising his or her profession and the service is merely incidental to that profession. The position is different when a professional person permanently accepts an employment and exchanges his profession for service.
3. It is dear on the facts of this case that Mrs. Durga Khote was not giving up her profession and was not exchanging her profession for any service. It is in order to carry out her profession of a film actress that she entered into various contracts with the film companies. Her employment was temporary and incidental to her profession and she had no intention permanently to engage herself with any company. She was completely fancy free after her contracts with the film companies were carried out to lend her services to any other company she desired. It is difficult to see how on the facts of this case it can ever be stated that she exchanged her profession for service and ceased to practise her profession and became a salaried servant of the various film companies, with whom she was working in order to practise her profession. Really speaking no authority is needed to establish this proposition, but there is a direct decision of English Courts in Davies v. Braithwaite, (1983) 18 Tax Cas. 198. That was also a case of an actress and Rowlatt J. with respect rightly laid down the principle which should be applied to cases of this sort and this is what the learned Judge says (p. 200):
“…. what I say is that it seems to me that where one finds a method of earning a livelihood which does not contemplate the obtaining of a post and staying in it, but essentially contemplates a series of engagements and moving from one to the other—and in the case of an actor's or actress's life it certainly involves going from one to the other and not going on playing one part for the rest of his or her life, but in obtaining first one engagement and then another, and a whole series of them—then each of these engagements could not be considered an employment, but is a mere engagement in the course of exercising a profession…”
4. If Mr. Joshi were right, then even when a lawyer engaged himself to conduct a case he would cease to be practising a profession and would be employed by his client for the purpose of conducting his case. I hope such a suggestion will never be made that a lawyer ever becomes a servant of his client by thus carrying out his work and ceases to be practising his profession.
5. The result is that we must hold that the assessee's income must be computed under S. 10 and not under S. 7, Income-tax Act. We, therefore, answer the questions referred to us in the following manner.
6. Question No. 1: Under S. 10 of the Act.
7. The second and the third questions do not, therefore, arise, and need not be answered. The Commissioner to pay costs of the reference.
V.R.B
Reference answered.
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