1962 (2) TMI 80 - HC - Income Tax

Issues Involved:
1. Constitutionality of the Amending Act (71 of 1950) under Article 14 of the Constitution of India.
2. Deductibility of Rs. 63,283 as commission paid to three employees under Section 10(2)(xv) of the Indian Income-tax Act.
3. Timing of the expenditure of Rs. 23,239 out of Rs. 63,283.
4. Deductibility of Rs. 4,557 out of Rs. 6,557 as commission paid to Hari Ram.
5. Deductibility of Rs. 6,000 out of Rs. 6,669 as commission paid to employees of Bhargava Ice Factory.

Detailed Analysis:

1. Constitutionality of the Amending Act (71 of 1950):
The primary issue was whether the Amending Act (71 of 1950) was ultra vires the Constitution of India, particularly under Article 14. The Tribunal held that the Act was intra vires as it made a reasonable classification by excluding assessees who had obtained favorable judgments from the Supreme Court before October 7, 1950. The Court upheld this view, stating that the classification based on pending and decided cases was reasonable and had a nexus with the object of the enactment. The Court cited the Supreme Court's decision in Ramjilal v. Income-tax Officer, Mohindargarh to support the principle that treating pending and decided cases differently is a permissible classification under Article 14.

2. Deductibility of Rs. 63,283 as Commission:
The assessee claimed a deduction of Rs. 63,283 paid as commission to three employees under Section 10(2)(xv) of the Indian Income-tax Act. The Tribunal accepted that the payment should be considered under Section 10(2)(xv) rather than Section 10(2)(x). The Court agreed, stating that the commission paid was part of the salary under the conditions of service and not a bonus or commission for services rendered. The Court emphasized that the expenditure was incurred wholly and exclusively for the purpose of the business and should be allowed as a deduction under Section 10(2)(xv).

3. Timing of the Expenditure of Rs. 23,239:
The Tribunal had found that Rs. 23,239 out of Rs. 63,283 should have been claimed in the preceding year. The Court held that this finding was incorrect as the right to receive the commission accrued to the employees only upon the completion of the contracts, which occurred in the previous year in question. Therefore, the entire amount was a legitimate deductible expenditure for the assessment year in question.

4. Deductibility of Rs. 4,557 out of Rs. 6,557 as Commission to Hari Ram:
The Tribunal disallowed Rs. 4,557 out of Rs. 6,557 paid as commission to Hari Ram, manager of Nawal Kishore Book Depot, on the grounds that the payment was not genuine and appeared to be an afterthought to reduce profits. The Court upheld this finding, noting that it was based on factual determinations and there was material to support the Tribunal's conclusion.

5. Deductibility of Rs. 6,000 out of Rs. 6,669 as Commission to Employees of Bhargava Ice Factory:
Similarly, the Tribunal disallowed Rs. 6,000 out of Rs. 6,669 paid as commission to employees of Bhargava Ice Factory, again finding the payment not genuine. The Court upheld this finding, agreeing that it was based on factual determinations and supported by material evidence.

Conclusion:
The Court answered the questions as follows:
1. The Amending Act (71 of 1950) is not ultra vires the Constitution of India.
2. The sum of Rs. 63,283 paid as commission to the three employees was expenditure incurred wholly and exclusively for the purpose of the business of the assessee.
3. The sum of Rs. 23,239 out of Rs. 63,283 was expenditure incurred during the previous year in question.
4. The sum of Rs. 4,557 disallowed out of Rs. 6,557 paid to Hari Ram was not expenditure laid out wholly and exclusively for the purpose of the business.
5. The sum of Rs. 6,000 disallowed out of Rs. 6,669 paid as commission to the employees of Bhargava Ice Factory was not expenditure laid out wholly and exclusively for the purpose of the business.

The Court allowed the assessee costs of the references, fixed at Rs. 300.

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