Law:

Section:

Section 2(5) of the Excess Profit Tax Act, 1940 - Business profits - Assessment year 1945-46 - Assessee was acting as broker for mills and was paid brokerage at rate of 4 annas per cent for securing contracts and giving advice - Later percentage of brokerage was raised to 1 per cent on condition that assessee would be responsible for bad debts on orders secured through him - Out of 1 per cent brokerage, 4 annas per cent was paid in cash as before and 12 annas per cent were credited to account of assessee for meeting bad debts - In assessment years 1942-43 to 1944-45 assessee had shown said brokerage as business income and assessed such - In relevant assessment year assessee, however, claimed that remuneration from said mills was taxable under head "salary" but EPTO rejected assessee's claim and assessed said remuneration as business income - Whether since mills handed over goods to assessee and were entitled to get price thereof from assessee, and in case of bad debts assessee would have to recompensate mills for price of goods, which amount might exceed amount received by assessee by way of commission this was clearly a venture in nature of trade which might end in profit or loss - Held, yes - Whether, therefore, receipts of assessee wholly or partly from mills could be held to be profits from business within meaning of section 2(5) - Held, yes FACTS The assessee acted as broker for 'L' mills and was being paid brokerage at the rate of 4 annas per cent. The assessee 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…

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