BHARGAVA, J. - The question referred by the Income-tax Appellate Tribunal for our opinion is :
'Whether on the facts and in the circumstances of this case, the remuneration received by the assessees karta as Government Treasurer, Ajmer-Merwara, fell to be charged as salary within the meaning of section 7 of the Income-tax Act, or should be regarded as income from business and chargeable under section 10 of that Act ?'
The assessee is a Hindu undivided family which had several sources of income. Seth Lal Chand was the karta of the assessee family and it is said in the statement of the case that the karta Seth Lal Chand, was appointed Government Treasurer, Ajmer-Merwara, by the Chief Commissioner of Ajmer by his order dated 23rd February, 1940. His remuneration was fixed by a later order dated 21st March, 1940, at Rs. 195 per mensem. Under the terms of his appointment, he was required to furnish security and in that connection he deposited security to the value of Rs. 60,000 in the form of Government securities, indemnifying the Government for any loss which might occur during the tenure of his office as treasurer. Further, he also furnished a security bond. The appointment having taken place in the year 1940, the remuneration received under the appointment was assessed for the first time in the income of the assessee Hindu undivided family under the head 'salary'. In the next four assessments, the same remuneration was charged to tax as income from business, profession or vocation under section 10 of the Act and in the first instance deductions of tax under section 10 were not allowed. This error was later on corrected by an order under section 35 of the Income-tax Act. In the year 1946-47 also, this income was assessed under section 10 of the Income-tax Act and, during those various years, this income was also included in the income of the Hindu undivided family for purposes of assessment to excess profits tax. In the next two years 1947-48 and 1948-49, this remuneration was charged to tax under section 12 of the Income-tax Act and then in the next two years 1949-50 and 1950-51 tax was levied under section 7 on this income under the head 'salary'.
The question of the head under which this income was chargeable to tax assumed importance particularly in the next two years of assessment, 1951-52 and 1952-53. The treasurer had employed one L. Radha Kishan as cashier for the work at Beawar Sub-Treasury and, during an annual inspection, it was found that there was a shortage of a sum of Rs. 84,251 which was believed to have been embezzled by the cashier. The assessee was called upon by the Government to make good the loss and, when the money was not paid, attempts were made to realize the amount from the security. The sum realized was Rs. 55,842 together with Rs. 2,583 as interest which was lying in the Beawar Sub-Treasury to the assessees credit. All this sum was forfeited by the Government filed a suit against the assessee which was decreed. In the assessment year 1951-52 the assessee claimed a sum of Rs. 516 as litigation expenses incurred by him in this connection. In the assessment year 1952-53, it was claimed that there had been a loss of Rs. 84,251 which together with Rs. 324 as litigation expenses were claimed as deductible when computing the income of the assessee under the head, 'profits and gains of business' under section 10 of the Income-tax Act. The claim was disallowed by the Income-tax Officer and the Appellate Assistant Commissioner and, when the appeal came before the Income-tax Appellate Tribunal, the Judicial Member also held that the remuneration received as treasurer was a fee in lieu of salary and as such chargeable to tax under section 7 of the Income-tax Act so that the loss incurred and the litigation expenses could not be taken into account when computing the income. The Accountant Member, on the other hand, held that the remuneration was being received by the treasurer as income from business and was chargeable to tax under section 10 of the Income-tax Act and, consequently, the losses incurred had to be deducted when computing the income in respect of the businesses including this business. There being a difference of opinion between the Judicial Member and the Accountant Member, the appeal was referred to the President of the Tribunal who agreed with the Accountant Member and, therefore, allowed the claim of the assessee. Thereupon, the Commissioner of Income-tax filed an application under section 66 (1) of the Income-tax Act and the Income-tax Appellate Tribunal has now referred the question mentioned above to us for opinion on the basis of the application.
When the statement of the case was prepared, the assessee moved the Income-tax Appellate Tribunal to include in the statement of the case one more fact, viz., that Seth Lal Chand was appointed treasurer for two other treasuries also situated at Sambhal and Panchabhadra. The Tribunal rejected this application for including this statement of fact in the statement of the case on the ground that it was unnecessary. The assessee has moved an application in this court under section 66 (4) of the Income-tax Act praying that we should ask for a further statement of the case on this question of fact. That application was directed to be put up for orders at the time of the hearing of the reference. We inquired from the learned counsel for the Department whether he was opposing that application. Learned counsel for the Department drew our attention to the fact that the various orders of the members constituting the appellate order of the Income-tax Appellate Tribunal had been made part of the statement of the case and, since there was a statement on this question of fact in at least the judgment delivered by the President of the Tribunal it was not necessary to call for a further statement of the case under section 66 (4) of the Income-tax Act. The statement of fact being already included in the appellate order recorded by the President of the Tribunal and that order having been made a part of the statement of the case it was urged that we can take notice of this statement of fact for the purpose of deciding the reference without asking for a further statement of the case. In the circumstances, the application under section 66 (4) of the Income-tax Act becomes unnecessary and is to be filed.
In answering the question referred to us the first point that has to be emphasised is that the question whether a certain income is received as salary or is income from business is essentially a question of fact and the answer to such a question will always depend on the facts and circumstances found in each case. In the present case the statement of the case and the appellate orders by three Members of the Tribunal who decided the appeal contain findings of fact, some of which are clearly relevant material for the finding that the income which was received by the treasurer, was being received as income from business. In enumerating these facts, we shall also take notice of the term of the security bond which has been made a part of the statement of the case by the Income-tax Appellate Tribunal. There are also at the same time some facts which can lead to the inference that the income was being received as salary and was not arising as profits and gains of a business. The facts which appear to support the contention of the Department are that (1) the appointment letter mentions that the person appointed as treasurer is being asked to take over charge of the post with the least possible delay indication that it was treated as an appointment to a post, (2) the subsequent letter fixing the remuneration describes the amount as pay, (3) then the security bond describes the appointment given to Seth Lal Chand as office of the treasurer, (4) the security bond also mentions that there are superior officer of the treasurer, Seth Lal Chand, and (5) duty is cast on the treasurer to keep true and faithful accounts of the property entrusted and of his dealings under written orders of his superior officer therewith in the form and manner that may from time to time be prescribed under the authority of Government and also to prepare and submit such returns and accounts as he may from time to time be called upon to prepare and submit. On the other side, the facts which appear to indicate the remuneration which was paid on appointment of Seth Lal Chand as treasure was income from business are that (1) the treasurer had and was to have the power to use his discretion in the appointment promotion suspension dismissal and retirement of his subordinates and was to have to power to demand security deposit with or without interest to keep with himself till the expiry or termination of his or their services, though all such orders under this clause were subject to the approval of the district officer who was always to be empowered to direct the treasurer to dismiss, suspend or punish any particular member of the staff and the treasurer had always to comply with such orders. In this connection notice may be taken of the fact that the staff which was to be appointed was to be in the service of the treasurer and there is nothing in the security bond or in any other material available to show that the staff after appointment was to be deemed to be in the service of the Government. It also appears that the actual control over the day to day work of the staff was vested in the treasurer and not in the Government or the officers of the Government. The intervention of the Government officers was permitted to the extent that all appointments, etc., were subject to the approval of the district officer and the district officer was empowered to direct the treasurer to dismiss, suspend or punish any particular member of the staff. This power of the district officer was a sort of general power of supervision over the appointment, dismissal, suspension, etc., of the staff without vesting in the district officer any power to regulate the day to day work of the servants of the treasurer. The treasurer had thus to maintain an organization of his own with a fairly large staff. (2) The salary of the staff appointed by the treasurer had to be paid by him and not by the Government. (3) The treasurer indemnified against any loss or damage to the Government property entrusted to him whether the loss occurred as a result of any act of the treasurer himself or any of his agents or whether it occurred even as a result of an act of a total stranger. The responsibility of the treasurer indemnifying the Government for such loss was held to be inconsistent with the treasurer was not required to render any personal service to Government and the services were to be performed not by the treasurer but by the staff of the treasurer. It was held by the President of the Tribunal that these facts and circumstances showed that the assessee was a contractor who agreed to get certain services performed and received a certain remuneration for the performance of these services performed and received a certain remuneration for the performance of these services and did not itself become a servant of the Government.
This enumeration of the facts found would show that the Tribunal came to findings some of which led to the inference that the assessee was working as an independent contractor whereas some pointed to the appointment being in the nature of a contract of service where under the assessee was receiving a salary. In these circumstances, it is not possible for us to hold that there was no material before the Tribunal for arriving at the finding which the Tribunal did. It may be that on that material two opinions might have been possible. As we have stated earlier, the question that arose was essentially a question of fact to be decided on the facts and circumstances found. While we find that there was material for arriving at the view which the Tribunal did, it is not possible for us to set aside the finding recorded by the Tribunal. We may, in this connection, refer to a decision of this court in Commissioner of Income-tax v. I. D. Varshani where, in similar circumstances, it was held by this court that a finding having been recorded that certain income was salary was a finding of fact on the material and, consequently, it could not be set aside by this court.
We may, however, add that, apart from the ground mentioned above, there is another reason why we must hold that in this case the view taken by the Tribunal is correct. We have mentioned earlier that, in the statement of the case, the Tribunal has stated that the assessee is a Hindu undivided family and its karta, Seth Lal Chand, was appointed Government Treasurer. Though this is the statement contained in the statement of the case, the appeal before the Tribunal appears to have been decided on a different basis. The Judicial Member and the Accountant Member constituting the Tribunal differed and thereafter the case was referred to the President of the Tribunal and the President in his appellate order mentioned that the assessee Hindu undivided family itself was appointed Government Treasurer. The President also mentioned that in the year 1944 the family was also appointed as treasurer of Sambhal Treasury and the Sub-Treasury at Panchabhadra. The case at the stage of appeal before the Tribunal was, therefore, decided on the basis that the person appointed as treasurer was the assessee Hindu undivided family and not the karta, Seth Lal Chand, in his individual capacity. Apart from this fact mentioned by the President of the Tribunal, there is the circumstance that the question that has been referred to us arose in proceedings for the assessment to tax of the income of the assessee Hindu undivided family and not in the proceedings for assessment to tax of the income of the individual, Seth Lal Chand. The income could be taxed as income received from the Government by virtue of appointment as Government Treasurer in the hands of the assessee family only on the basis that the income accrued to and was received by the family and it appears that it was for this reason that the question referred to us was also framed by the Tribunal in the manner reproduced above. The amount, which was received by the assessee, was no doubt mentioned in the question as remuneration received by the assessees karta as Government Treasurer of Ajmer-Merwara. But the question asked was whether it fell to be charged as salary under section 7 or should be regarded as income from business and chargeable under section 10. Such a question in the proceedings for assessment of the assessee Hindu undivided family could only arise if the income was sought to be charged as income of the Hindu undivided family. It seems that, from the very first stage when the proceedings started before the Income-tax Officer, the case was dealt with on the basis that both parties admitted that the remuneration being paid to the Government Treasurer on appointment as such was income being received by the assessee family and not income received by Seth Lal Chand in his individual capacity. Some confusion, however, appears to have occurred in the statement of the case wherein the Tribunal proceeded to mention that Seth Lal Chand was appointed as Government Treasurer. But in these proceedings for assessing the Hindu undivided family, the question could only arise on the basis that the appointment as Treasurer was really that of the Hindu undivided family. It was for this reason that the President of the Tribunal in his appellate order clearly stated that the family was appointed Government Treasurer, Ajmer-Merwara. At this stage when the case has already proceeded up to its decision by the Income-tax Appellate Tribunal in proceedings for assessment of the assessee on the basis that the family was appointed as Government Treasurer, though in the name of Seth Lal Chand, it is not open to this court to go behind this fact and the question has to be answered on the basis that it is an admitted fact.
The fact that the appointment as treasurer was that of the Hindu undivided family and not of Seth Lal Chand as an individual is of great importance because it appears to us that, from the very nature of the person appointed as treasurer, it cannot be accepted that the appointment was as a servant and not as an independent contractor. A Hindu undivided family carrying on business can easily enter into a contract to work as an independent contractor in the course of its business or by starting that business. A Hindu undivided family, on the other hand, it appears to us, cannot as such accept service or be appointed as servant. In this case, it is not known who were the various persons constituting this Hindu undivided family but there can be cases were a Hindu undivided family may consist of adult male members, minor male members, adult females and minor females. The number of members may also fairly be large. If, in such a case, appointment as treasurer were to be treated as appointment of a servant, it would mean that all these adult and minor male and female members of the family would jointly become Government Treasurer and servant of the Government so that one post of treasurer is filled by a large number of persons jointly together. It would also result in acceptance of the principle that the karta of a Hindu undivided family would, acting in such capacity, be capable of making all such members of the family servants of the Government. That the status of the person appointed is a relevant consideration when interpreting the nature of that appointment was laid down by this court in Inderchand Hari Ram v. Commissioner of Income-tax. In that case, the question that had come up for consideration was, 'Whether a partnership firm acting as managing agents was working in the capacity of a servant or was carrying on its business.' It was held by this court that a partnership firm under the Indian Partnership Act is constituted for the purpose of carrying on a business only and is not constituted for the purpose of entering into service. This circumstance itself showed that the work of managing agents was being carried on by the partnership firm as a business and the appointment as such was not appointment of a servant to a post. The principle laid down in that case was approved by the Supreme Court in Lakshminarayan Ram Gopal and Son Ltd. v. The Government of Hyderabad. The Supreme Court laid down the principle in the following words :
'When a partnership firm comes into existence, it can be predicated of it that it carries on a business, because partnership according to section 4 of the Indian Partnership Act is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.'
After laying down this principle their Lordships of the Supreme Court referred to the case of Inderchand Hari Ram v. Commissioner of Income-tax cited above by us. In the present case also it is, therefore, a relevant consideration to see whether when a contract for accepting appointment as treasurer is entered into by the karta on behalf of a Hindu undivided family, it can be held that the family accepted a contract of service and was not entering into a contract of business to work as an independent contractor. As we have said earlier, a Hindu undivided family, which may consist of numerous persons cannot as a whole become a servant of the Government nor can it be held that every single member of the family, whether that member be a female or male or whether the member be an adult or a minor would become a servant and all of them would hold the same post. There is the further consideration that there is nothing in Hindu law which indicates that the karta, as manager of a Hindu undivided family, has the authority to enter into a contract by which all members of the family jointly would become servants under a contract of service with the Government or any other person. On the other hand, a karta has authority to enter into contracts for business on behalf of the Hindu undivided family, to deal with the property of the Hindu undivided family and to incur debts. In the present case, therefore, when the karta, Seth Lal Chand, accepted the appointment on behalf of the family, it must be held that what he accepted was work as an independent contractor. As a manager of the business of the Hindu undivided family he had a right to enter into contracts and he could deal with all the properties of the Hindu undivided family on their behalf. This consideration of the facts found in this case can only lead to the inference that the appointment of the family as Government Treasurer was accepted as work of an independent contractor and not as an appointment in the capacity of a servant. The first part of the question which has been referred to us for opinion is, therefore, answered in the negative and the second part in the affirmative. The assessee will be entitle to the costs of this reference which we fix at Rs. 300. The same amount shall be treated as fees payable to learned counsel for the Department for the purposes of calculation of costs.
Reference answered accordingly.