Composite agreement income can be split between salary and business income when service and agency obligations are legally distinct.

A composite agreement may be apportioned where its obligations have distinct legal incidents. The treasurer's duties were performed under the bank's control and direction, so the fixed monthly remuneration was characterised as salary from a contract of service. The guarantee commission agency, however, involved independent discretion in enquiring into borrowers, recommending advances, bearing default risk, and exposure to liability against security, so that part was treated as business income. A single instrument did not prevent bifurcation where substance showed separable service and agency functions.

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Issues: Whether the remuneration received as treasurer and guarantee commission agent under a single agreement was wholly income from business or whether it had to be split into salary for service and business income for the commission agency work.

Analysis: The nature of the two functions had to be examined separately on the terms of the agreement and the real incidents of the relationship. The treasurer's work was performed under the control and directions of the bank, with duties characteristic of service. By contrast, the guarantee commission agency involved independent discretion in making enquiries, recommending borrowers, bearing the risk of loss if approved borrowers defaulted, and exposing the assessee to liability out of his security. A single agreement did not prevent the income from being apportioned where the obligations and remuneration were distinct in substance.

Conclusion: The receipt of Rs. 100 per mensem for work as treasurer was salary from a contract of service, while the commission received for guarantee commission agency was income from business within section 2(5) of the Excess Profits Tax Act.

Final Conclusion: The reference was answered by bifurcating the composite arrangement, treating one part as employment income and the other as business income.

Ratio Decidendi: Where a composite agreement contains separable obligations with distinct incidents, the income may be apportioned by characterising one part as service income and another as business income according to control, discretion, and risk.

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