Business income treatment for machinery worked under agency arrangement, despite fixed return and owner's retained control.

Receipts under an arrangement described as managing agency were treated as business income because the agreement preserved the owner's control, ownership, licence and inspection rights, and the machinery was operated to carry on the factory business rather than merely let out as idle assets. A fixed monthly guaranteed payment did not by itself convert the arrangement into a lease or make the income fall under income from other sources. The decisive feature was that the looms were worked on behalf of the owner in a principal-agent relationship, so the receipts were taxable under the business head.

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Issues: Whether the amount received under the agreement was assessable as business income under section 10 of the Income-tax Act, 1922, or as income from other sources under section 12 of the Income-tax Act, 1922.

Analysis: The agreement repeatedly described the second party as managing agent or power agent and preserved the assessee's ownership, licence, and inspection rights. The arrangement showed that the machinery was put into commission for working the factory and not merely let out as idle assets. A fixed monthly guaranteed payment did not, by itself, convert the arrangement into a lease or negate the carrying on of business. The decisive feature was that the working of the looms was undertaken on behalf of the assessee in a principal-agent relationship.

Conclusion: The income was rightly treated as business income and not as income from other sources.

Final Conclusion: The reference was answered by holding that the agreement did not create a lease, but only an agency for carrying on the business, so the receipts were taxable under the business head.

Ratio Decidendi: Where a commercial asset is worked through an agent under an arrangement that preserves the owner's control and ownership and is intended to carry on the business, the resulting receipts constitute business income even if the return is fixed.

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