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TMI Blog1953 (5) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed it under the head salary . The Excess Profits Tax Officer, on the other hand, claimed that the amount was income from business for which excess profits tax was payable. The question referred to us relates to this sum of ₹ 1,27,147 and we have been asked to decide whether on the facts and in the circumstances of the case it could be held to be profits from business as defined in Section 2(5) of the Excess Profits Tax Act. Before we come to the definition, it would be convenient to give the facts so far as they appear from the statement of the case and the appellate order. The assessee acted as broker for Laxmi Ratan Cotton Mills Ltd., Kanpur (hereafter called the Mills ), i.e., he used to secure orders for the Mills and was being paid brokerage at the rate of 4 annas per cent. It appears that he used also to advise the Mills as to the type of cloth that would find a ready market, for which act he was not getting any separate remuneration. In the assessment year 1939-40 the income under this head, i.e., brokerage from the Mills, was ₹ 3,643, and the assessee showed it in his return under the head income from business . In 1941-42 the income from this sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold and for this he was getting 1 per cent, as commission. He, however, admitted that there was no agreement with the Mills as to the capacity in which he would work. This statement of his that he was working as sales manager does not appear to have been accepted by the Appellate Tribunal as would appear from paragraph 4 of the appellate order. From the facts enumerated above which were established, the Tribunal in its appellate order has inferred:- (1)that the assessee was an adviser of a commercial nature to the Mills and used to give advice to the company as to the type of cloth that would find a ready market; (2)that he used to find a ready market for the goods through his own exertions; and (3)that he dealt with the goods quite independently of the company. This last inference is based on the fact that if he was liable to reimburse the company for any bad debts incurred he would certainly be entitled to an independence in the matter of effecting the sales of the company's stuff . On these findings and inferences, as also the facts that the asses-see had in the past been showing the income as income from business, the Tribunal observed:- That h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controlled by contract or a discretion conferred by others on a servant so that all his powers and authority flow from his master. In the case of a servant it is not likely that he would be entitled to the profits of the business and liable for its losses, though he may be remunerated not in cash but on a percentage basis so that his income would vary according to the amount of business done by him for his master. The capacity in which he was carrying on the work is another test, e.g., a company may employ a broker to secure orders for it. In that case it would be the duty of the broker to work to secure orders. We have cases of travelling agents and others who, though remunerated on a percentage basis, may be held to be servants. On the other hand, it is open to an assessee to take upon himself the work of securing orders and on such orders as he secures he might get a commission, the rate of commission varying according to the amount of orders secured by him, so that if he does not secure any order it would not be open to the company to claim that the assessee had not done the work for which he had been employed. In other words, it is left to the option of a broker unless he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck of comptometers to a quantity which they deemed desirable and necessary for the business; to pay all transportation charges to the territory on all comptometers shipped by them to the appellant, or on his order; to exercise their best endeavours to prevent any comptometers from being sold to parties in the territory without the appellant receiving his full commission thereon; to pay the rent of the main office in London, it being left to the company to fix the size, location etc. of the office. The company was also to pay for the heating, cleaning, lighting, office furniture, office supplies, telephone rates and taxes, postage, printing, stationery and advertising etc. and the amount of the expenditure was to be determined by the company itself, but they were not liable to pay any travelling expenses and hotel bills. They were to pay commission at a fixed rate for each comptometer sold and they were to send to the appellant all letters of enquiry from prospective customers. The company was to pay salary of one stenographer. The company was to pay the employer's contribution for all sub-agents working for the assessee. The company guaranteed an income of 50 per month until ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 108, and as regards the taking over the sole selling agency of Messrs. Shankar Sugar Mills Ltd., we held that the assessee was a servant of the company while as regards the work of managing agents of Messrs. Shankar Sugar Mills Ltd. we were of the opinion that the assessee was carrying on a business of his own. The reasons given by us in the judgment bring out the difference between the two capacities. As we pointed out, the question has to be determined on the basis of the relationship and on the facts and circumstances of each case. The definition of business in Section 2(5) of the Excess Profits Tax Act is as follows:- 'business' includes any trade, commerce or manufacture or any Adventure in the nature of trade, commerce or manufacture or any profession or vocation........ .. It would thus appear that the definition of business in the Excess Profits Tax Act is very wide and it includes in its scope not only work which is considered normally to be business, i.e., trade, commerce and manufacture, but also includes within its scope profession and vocation. As regards profession, however, the section provides that, if the income from profession is mainly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide it afresh even after taking such further evidence as may be necessary, but that stage would arise only after we have answered the reference under Section 66. As regards the brokerage of 4 annas per cent. all that we know is that the assessee was doing the work of securing contracts and giving advice and was being paid remuneration therefore. In (he absence of any finding that he had been employed for that purpose it is difficult to say that the Appellate Tribunal was wrong in its view and that this was not income from business. As regards the remuneration of 12 annas per cent. for guaranteeing bad debts we fail to see how it could be salary. Mr. Pathak has urged that this guarantee only means that the assessee was to do his work properly and secure contracts from those who were solvent enough to pay for them. The assessee's liability did not depend on the question whether at the time that the goods were sold the purchaser was or was not solvent. The guarantee included that, if for any reason, which might include a supervening cause which came into existence after the date of the contract, the customer was not able to, or did not, pay, the assessee had to pay for hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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