Selling agency commission as business income where operations were carried on through agents and sub-agents, supporting firm registration.

Selling agency commission was treated as business income where the assessee carried on an organised commercial activity through sub-agents and a broker, even though it remained largely inactive and kept only summary records. Business need not be personally executed by the assessee; activity carried on on its behalf through agents can retain the character of business. On that basis, the commission fell under business income rather than income from other sources. The same business character also supported recognition of the assessee as a firm entitled to registration, as the partnership requirements were satisfied and no other defect in the application was shown.

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Issues: (i) whether the assessee's income from selling agency commission was assessable as business income under section 10 of the Income-tax Act, 1922; (ii) whether the assessee was a firm entitled to registration under section 26A of the Income-tax Act, 1922.

Issue (i): whether the assessee's income from selling agency commission was assessable as business income under section 10 of the Income-tax Act, 1922.

Analysis: The assessee had entered into the selling agency arrangement, appointed sub-agents and a broker, and carried out the selling operations through them. Business need not be conducted only by the assessee in person; it may be carried on through agents, servants, or employees. The fact that the assessee itself remained largely inactive and kept only summary records did not destroy the character of the activity as a continuous and organised business carried on on its behalf.

Conclusion: The income was assessable as business income under section 10 and not as income from other sources.

Issue (ii): whether the assessee was a firm entitled to registration under section 26A of the Income-tax Act, 1922.

Analysis: Once the activity was held to be business, the relationship between the partners satisfied the requirements of a partnership under the Partnership Act, and no other defect in the application for registration was shown. The status adopted by the revenue as a mere association of persons was therefore not sustainable.

Conclusion: The assessee was a firm entitled to registration under section 26A.

Final Conclusion: The reference was answered in favour of the assessee on both questions, with the department bearing the costs.

Ratio Decidendi: Business income may arise where the assessee carries on an organised commercial activity through appointed agents or sub-agents, and such activity remains business even if the assessee itself does not personally execute each transaction.

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