1. The appeal by the revenue, and the cross-objection by the assessee, Shri D.N. Dhingra of Agra, an individual, arising out of the order of the AAC, Agra, dated 4-12-1981, are consolidated, heard together, and are being disposed of by a common order for the sake of convenience.
2. The year of assessment involved is 1977-78 for which the previous year ended on 31-3-1977.
3. The assessee was at one time working as an agent with Norwich Union Life Insurance Society. After life insurance was nationalised in the country, the Life Insurance Corporation (LIC) came into existence under the Life Insurance Corporation Act, 1956. The assessee vide agreement dated 10-1-1957 was continued as an agent of LIC on the terms and conditions mentioned in the said Act. A copy of the said agreement has been produced before me. Admittedly, the assessee in the year under consideration retired as an agent of the LIC. On his retirement the assessee was paid by way of gratuity an amount of Rs. 20,609. This payment was over and above the income earned by the assessee as an agent of the LIC in the year under consideration of Rs. 16,349. The gratuity amount of Rs. 20,609 has been taxed by the ITO under the head 'Income from other sources'. In respect of the gratuity paid to the assessee by the LIC, the claim of the assessee that it was exempt under Section 10(10)(iii) of the Income-tax Act, 1961 ('the Act') has been negatived by the ITO on the ground that the relationship between the LIC and the assessee was not that of an employer and an employee but that of a principal and an agent.
4. Aggrieved by the aforesaid assessment, the assessee brought the matter by way of appeal before the AAC who has agreed with the ITO that the aforesaid gratuity amount received by the assessee was not exempt under Section 10(10)(iii). He, however, held that the above gratuity amount was exempt under Section 10(3) of the Act because, according to him, the gratuity received was a casual and non-recurring receipt. The revenue is aggrieved against the finding just mentioned hereinbefore.
The assessee has filed the cross-objection to urge that there was a relationship of employer and employee between the LIC and him and so the aforesaid gratuity amount was exempt under Section 10(10)(iii).
5. Taking the cross-objection of the assessee first, it may be stated that the assessee had taken me through the aforesaid agreement between the LIC and the assessee dated 10-1-1957 It was urged by the assessee that the said agreement clearly established the relationship of employer and employee between the aforesaid Corporation and the assessee. The gratuity amount received was exempt under Section 10(10)(iii). To buttress his stand, the assessee took me through the Sixth Schedule of the Life Insurance Corporation of India (Agents) Regulations, 1972 and on the basis of paragraph 3 of Sixth Schedule thereof, it was urged that the gratuity admissible to an assessee, like the present assessee, was computed in the same manner as laid down in Section 10(70)(0- These arguments of the assessee are controverted by the departmental representative, who has relied on the orders of the tax authorities.
6. I have given consideration to the above arguments. Section 10(70) lays down that in computing the total income of a previous year of any person, any income falling within Sub-clause (in), namely, "any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, ... to the extent it does not, in either case, exceed one half months salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to the maximum of thirty thousand rupees or twenty months' salary so calculated, whichever is less ;" shall not be included. A perusal of this provision shows that the condition precedent for the exemption enumerated in Section 10(10)(iii) is that the gratuity paid should spring out of the relationship of an employer and an employee between the payer and the payee. To say in other words, the sine qua non is that there must exist relationship of employee and employer between the assessee and the LIC, the payee of the gratuity amount 'in question. There is no denying of the fact that this is a question of fact in each case, whether the relationship of master and servant exists between the person employing and the person employed. It is well established that a contract for service is different from a contract of service. In the former case, the master can order or require only what is to be done, while in the latter he cannot only order or require what is to be done, but also how it shall be done. To put in other words, the test which is uniformly applied in order to determine the relationship of master and servant is the existence of a right of control in respect of the manner in which the work is to be done. Of course, the nature or extent of control which is requisite to establish the relationship of employer and employee must necessarily vary from business to business and is by its very nature incapable of precise definition. Generally a master is one who not only directs what and when a thing is to be done, but also how it should be done. A servant is not only a person who receives instructions from his master, but is also subject to the master's right to control the manner in which he carries out those instructions : See in this connection Dharangadhara Chemical Works Ltd. v. State of Saurashtra  SCR 152, and CIT v. Lakshmipati Singhania  92 ITR 598 (All.).
7. Keeping in view the abovementioned case law on the subject, we come to the facts in the present case. As already stated, the assessee was at one time working as an agent with Norwich Union Life Insurance Society. On the nationalisation of the life insurance business in India by the Life Insurance Corporation of India Act, the assessee was continued as an agent of the LIC on the terms and conditions of the agreement contained in the letter issued by the LIC to the assessee dated 10-1-1957. The appointment of the assessee as an agent was subject to the condition that he, being in the city of Agra with a population of one lakh and over, was required to complete in each calendar year an aggregate business of at least Rs. 40,000 on six different lives, that the assessee was, vide paragraph 2, to complete the qualifying business every calendar year from 1-1-1957 and so long thereafter, as he was permitted to work as an agent. Paragraph 3 lays down the manner of computing the said qualifying business. Paragraph 4 thereof lays down that if the assessee fails to complete the requisite volume of business in two consecutive calendar years, his agency was to stand automatically terminated from the beginning of the year following. Paragraph 5 enumerates that the appointment of the assessee as an agent would be automatically terminated if at any time he becomes subject to any of the disqualifications enumerated therein, namely, of his blindness in both eyes or stone-deaf, or dumb, or his being declared insolvent by a court of competent jurisdiction, etc. Paragraph 6 empowers the LIC to terminate the appointment of the assessee as an agent by written notice if in its opinion his conduct becomes such as to render him unfit to act as its agent, or if in its opinion the assessee acts in a manner prejudicial to the interests of the LIC or to the interests of its policy-holders, or if evidence comes to the knowledge of the LIC that the assessee has been allowing and/or offering to allow rebate of the whole or any part of the commission paid to him. Paragraph 7 then enumerates that on automatic termination of the assessee's agency he will not be entitled to remuneration or compensation except that he would be entitled to settlement of his account. Paragraph 8 brings out the position if the assessee shifts his area of operation from one jurisdiction to another jurisdiction.
Paragraph 9 then lays down that the assessee was not authorised to collect money, accept risks or bind the Corporation, etc. Paragraph 10 focuses the provisions in the Insurance Act, 1938 that an insurance agent is prohibited from allowing or offering to allow, either directly or indirectly, as an inducement to any person to effect or renew a LIC policy, any rebate of the whole or part of the commission payable.
Paragraph 11 states that the assessee would be supplied with the leaflet entitled 'Hints to Agents' and he was to adhere to the instructions contained therein. Paragraph 12 lays down that as full compensation and remuneration for services of all kinds rendered by the assessee to the LIC with regard to his agency, he would be paid commission, as per Schedule rates in force from time to time. Certain other payments are enumerated in paragraph 13 to which the assessee would be entitled. Paragraph 14 lays down the lien and charge of the LIC on certain conditions. Paragraph 15 empowers the change of the commission rates from time to time. Paragraph 16 brings out that the appointment can be terminated by either party by giving one month's notice in writing to that effect to the other party.
8. From these terms and conditions of the employment of the assessee as an agent by the LIC, it is apparent beyond any shadow of doubt that there is no relationship of employer and employee between the LIC and the assessee. say so, because the LIC under the said agreement has no right of control in respect of the manner in which the work as an agent is to be done by the assessee. The LIC is not the master of the assessee because it does not have the right to direct under the above agreement what and when a thing is to be done and also how it should be done. The assessee is not a person who receives instructions from the LIC nor is he subject to the LIC's right to control the manner in which he carries out those instructions. A relationship between the assessee and the LIC, as rightly held by the tax authorities, is that of an agent qua the principal. Since there is no relationship of master and servant between the LIC and the assessee, the benefit of Section 10(10)(iii) in respect of the gratuity amount paid by the LIC to the assessee in terms of the Life Insurance Corporation of India (Agents) Regulations is not available to the assessee. To say in other words, the aforesaid gratuity amount received by the assessee from the LIC is not exempt under Section 10(10)(iii).
9. We now come to the appeal by the revenue. Section 10(3) is attracted if we are able to hold that the gratuity amount received was a casual and non-recurring receipt. After hearing both ... the departmental representative and the assessee in person, I am of the opinion that the gratuity amount received by the assessee cannot be classified as a casual and nonrecurring receipt, I say so because a receipt which is foreseen and is anticipated cannot be regarded as casual even if it is not likely to occur again: See in this connection Ramanathan Chettiar v. CIT  63 ITR 458 (SC). The word 'casual' in Section 10(3) must be read as meaning the antithesis of that which is governed by something more than mere chance - something out of which, according to the probabilities of business or to the known course of practical experience, a rational expectation of profit arises : See Lola Indra Sen, In re.  8 ITR 187 (All.). The gratuity received, in view of the Life Insurance Corporation of India (Agents) Regulations was a receipt which was foreseen and anticipated by the assessee as an agent on his retirement after attaining the age of sixty. Even though it was not likely to occur again, yet the receipt being foreseen and anticipated cannot be regarded as a casual receipt. Section 10(3) is, therefore, not attracted in the present case.
10. In the result, the appeal by the revenue is allowed and the cross-objection by the assessee is dismissed.