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Interpretation of income tax provisions regarding deduction of commission paid to managing director as a business expense. Applicability of Notification granting exemption for sums paid out of profits for services rendered. Jurisdiction of the Commissioner of Income-tax to decide on the exemption claim. Analysis: The case involved the petitioner, the son of a managing director of a company, who claimed a deduction for the commission paid to his father as per the company's resolution. The Income-tax Officer disallowed the commission deduction, considering it as a distribution of profits to the managing director. The Appellate Assistant Commissioner and the Appellate Tribunal upheld this decision based on similar reasoning in previous years. The petitioner then sought relief under a Notification exempting sums paid out of profits for services rendered. The Commissioner of Income-tax declined to interfere without considering the Notification's provisions. The High Court analyzed the situation, emphasizing that a mere sharing of profits cannot be deducted as a business expense unless the sum would not have been payable as profits or dividend. The court highlighted that the profits are taxed at the point of receipt by the assessee, regardless of their subsequent use or distribution. To claim exemption under the Notification, it must be established that the deduction was disallowed due to being a division of profits. The court found that the disallowance of the commission deduction was solely on the grounds of profit division, making the assessee eligible for the exemption. Concluding that the Commissioner had misdirected himself and failed to exercise his jurisdiction, the court allowed the application. The Commissioner was directed to reconsider the petition and make a decision in accordance with the law. The court emphasized that there was an apparent error in rejecting the petition, given the circumstances and legal provisions involved.
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