1964 (9) TMI 81 - HC - Income Tax

Summary

Issues Involved:
1. Exemption under section 4(3)(vi) of the Income-tax Act.
2. Nature of the 5% commission received by the assessee.
3. Whether the assessee held an office or employment of profit within the meaning of section 4(3)(vi).

Issue-wise Detailed Analysis:

1. Exemption under section 4(3)(vi) of the Income-tax Act:
The primary issue was whether the amount of Rs. 1,90,538 received by the assessee during the accounting year was exempt from tax under section 4(3)(vi) of the Income-tax Act. The Tribunal had ruled in favor of the assessee, stating that the 5% commission was a special allowance specifically granted to meet contingency expenses, and thus exempt under section 4(3)(vi). The High Court of Bombay initially upheld this view, but the Supreme Court remitted the case back to the High Court to direct the Tribunal to state a case on whether the 5% commission or the unexpended portion thereof was exempt under section 4(3)(vi).

2. Nature of the 5% commission received by the assessee:
The learned Advocate-General contended that the 5% commission did not represent a special allowance specifically granted to meet particular expenses. However, the Tribunal and subsequently the High Court found that the 5% commission was indeed a special allowance for meeting contingency expenses such as commissions to dyeing masters and agents. The agreement dated 29th October 1928, and the letter dated 20th August 1935, clarified that the 5% was compensation for such expenses, thus qualifying it as a special allowance under section 4(3)(vi).

3. Whether the assessee held an office or employment of profit within the meaning of section 4(3)(vi):
The High Court initially ruled that the assessee, as the selling agent for Ciba (India) Limited, held an office of profit. This decision was based on the precedent set in Tejaji Farasram Kharawalla's case. The Supreme Court did not disturb this finding but remitted the case to address the comprehensive question of whether the 5% commission was exempt. The High Court reaffirmed that the assessee held an office of profit, rejecting the Advocate-General's argument that the term "office or employment of profit" implied a subsisting, permanent, substantive position.

Conclusion:
The High Court concluded that the 5% commission received by the assessee was a special allowance specifically granted for meeting contingency expenses and was exempt under section 4(3)(vi). Additionally, the assessee held an office of profit within the meaning of section 4(3)(vi). The reference was answered in favor of the assessee, and the Commissioner was directed to pay the costs of the assessee.