• Legis Scriptor

Lakshminarayan Ram Gopal vs. The Government of Hyderabad

Authored By- Pallavi Barwar

Keywords: Judgment, tax, income, remuneration, appellant, state.

Citation: 1954 AIR 364, 1955 SCR 393

Petitioner: Lakshminarayan Ram Gopal

Respondent: Government of Hyderabad

Bench: H. Natarwarlal Bhagwati

ABSTRACT The proceeding aims to clear some points regarding the difference between agent and servant, taxable income, and remuneration. In this case, the agent was hired by a company and for his service, he was paid commission and remuneration. But when he was asked by the tax department to pay the taxes for his income generated they refused on the ground that there was nowhere mentioned that remuneration will be count in taxable incomes and files a case regarding the same in the Hyderabad high court. The whole research is done to analyze the circumstances, highlight the applicability and amenability of laws and acts that lead to a particular decision. INTRODUCTION The case was registered on April 1, 1954. the case revolves around 1954. April 1. The Judgment of the Court was delivered by BHAGWATI J.-These are two appeals from the judgment and decision of the High Court of Judicature at Hyderabad answering certain questions referred at the instance of the appellants by the Commissioner of Excess Profits Tax, Hyderabad, and adjudging the liability of the appellants for excess profits tax regarding the amounts received by them as remuneration from the Dewan Bahadur Ramgopal Mills Company Ltd. as its Agents.

Facts A mill company got registered itself in Hyderabad on 14th February, 1920. And the company of the appellant also registered on 1st March, 1920. In the next month, both the companies came into an agreement in which the appellant was appointed as the agent of the other company for the period of 30yrs based on the terms and conditions that were made at the time of the agreement. The appellant received the same amount from the company as a sort of remuneration for the Flash Year 1351 to 1352. A notice was issued by the officer of Excess Profit Tax to the appellant to pay the tax on the received remuneration. In response to this, the appellant stated that the remuneration was doesn't comes in the category of taxable incomes. This contention was rejected and an order was issued to check the accounts and income of the appellant and to assess the tax accordingly. Issues Involved- Four questions were raised by the Commissioner to the High Court: 1. Whether the petitioner company is a partnership firm or a registered firm? 2. Whether under the terms of the agreement the petitioner is an employee of the Mills Company or carrying on business? 3. Whether the remuneration received from the Mills is on account of the service or is the remuneration for business? 4. Whether the principle of personal qualification referred to in Section 2(4) of the Excess Profits Regulation applicable to the Company?[1] Judgement- When the case was handed over to the apex court it gave the judgment focusing on the four questions raised before the high court. Question 1 and 4 were answered in regards to section 14 of the Indian Partnership Act and said that partnership is a relationship in which partners agrees to share all gains and losses. The resolution was given keeping in mind the case "Indercchand Hari Ram Vs. Commissioner of Income Tax."

Now when it comes to question 2 and 3 the court made certain observations. It seems that the subject-matter of an incorporated company as set out in the Memorandum of Association was not definitive as to whether the company's activities amounted to carrying on or undertaking. But they are important for determining the nature and scale of such activities.

After taking into account all the important matters, agents agreement, appellant terms the bench come up to the conclusion that whatever the appellant do for the company is a kind of a business and the remuneration and other benefits that the agents receive from the contracting party is a portion of the profits and gains that are received by him under the conditions mentioned in the contract. And therefore he can't deny paying the taxes by saying that remuneration is not a taxable income and hence, the Supreme Court dismissed his appeal.

Researchers view:

The case was decided on the grounds of another case i.e. Ram Prashad vs. Income Tax, New Delhi. In this case, the appellant was the agent of the company and claimed that to charge the income from the company is invalid because it's the remuneration. The court in this case said that remuneration is a form of salary and thus he should pay taxes for the income he received. Through this case, it can be easily sorted out that remuneration is also a form of income, profits, or losses of the business. In the case of Ramgopal, the appellants were considered servants of the Mills Company and not agents because their income was taxable within the limits of the Excess Profits Legislation


The case holds an important significance in the legal history of the country. This judgment has highlighted the difference between agents and servants of the company by highlighting some points. Firstly, the master has the right to order or to command his agent what to do and what not to do but the agent can't be ordered like this. Secondly, the masters instruct the servant to follow a particular method to do something but this is not the case with the agent as the agent can instruct but can't be governed to do something in a particular way. Thirdly, most of the time there is no form of contract between master and servant but this cannot work in a principal and agent relationship. Furthermore, the servant is paid a salary and an agent is paid a commission. hence, it can be rightly said that this case law has welcomed the unwanted consequences in the Indian Contract Act,1872.

[1] Bhattacharjee, Romit. “Case Comment: Lakshminarayan Ram Gopal and Sons v/s Government of Hyderabad.” Legal Service, Romit Bhattacharjee, Accessed 30 Aug. 2020.