JEEWANLAL L Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under Section 21, Excess Profits Tax Act, read with Section 66 (1). Income -tax Act, the following question has been referred to this Court for decision: 'Whether on the facts and in the circumstances of the case mentioned wholly or partly income from Laxmi Ratan Cotton Mills Ltd., could be held to be profits from business within the meaning of Section 2 (5) of the E.P.T. Act?'

(2.) THE assessee is Lala Jeewan Lal Dalal of Generalganj, Kanpur, who is being assessed in the status of an individual. The relevant, assessment year is 1946 -47 and the chargeable account period is from 1 -4 -1945 to 31 -3 -1946. The assessee apart from other income showed in his return an amount of Rs. 1,27,147/ - as remuneration from Laxmi Ratan Cotton Mills Ltd., Kanpur, at 1 per cent on sales and claimed 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.

(3.) 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 Rs. 3,643/ -, and the assessee showed it in his return under the head 'income from business'. In 1941 -42 the income from this source went up to Rs. 22,741/ -, It was during the assessment year, 1941 -42 that the assessee agreed to be responsible for any bad debts on orders secured through him and the commission payable to him was increased from 4 annas per cent, to one rupee per cent. The Mills continued to pay the commission of 4 annas per cent in cash as before and the balance of 12 annas per cent was credited to the account of the assessee for meeting bad debts. In the assessment years, 1942 -43, 1943 -44 and 1944 -45 the assessee continued to show the income from the Mills under the head 'business' and the amount was assessed as such,