1959 (5) TMI 15 - SC - Income Tax

Whether the assessee is entitled to relief granted by the Notification No. 878-F dated March 21, 1922, as amended by Notification No. 8 dated March 24, 1928? Held that - Having regard to the purpose of the notification and the context and the sequence in which the words assessed and charged have been used, it is clear that the word charged does not, in the notification, mean the mere statutory liability to pay tax but goes further and includes the actual charge or levy. Apart from the fact that in view of the claim for relief under section 25(4) the Income-tax Officer need not have taken the trouble of going through the process of assessment of the firm s income at all, it is not disputed that in fact the firm s income has not been assessed to tax and no tax has been charged in the sense of being levied. In this view of the matter the third condition has not been fulfilled and the assessee cannot, therefore, claim any relief under the notification. The referred question should, in our opinion, be answered in the negative. The appeal is, therefore, allowed.

Summary

Issues:
1. Interpretation of a notification regarding exemption from taxation on commission income.
2. Conditions for claiming exemption under the notification.
3. Application of conditions to the case of an employee receiving commission from a firm.
4. Assessment of income-tax and super-tax on commission income disallowed to the firm.
5. Determination of whether the employee is entitled to relief under the notification.

Analysis:

The Supreme Court judgment dealt with an appeal regarding the interpretation of a notification granting exemption from taxation on certain types of income, including commission. The case involved an employee of a firm who received commission based on the firm's turnover. The key issue was whether the employee was entitled to relief under the notification for the commission income disallowed to the firm and taxed. The Court analyzed the conditions for claiming exemption under the notification, emphasizing that all conditions must be met for the assessee to benefit from the exemption.

The first condition required the sum to be paid out of or determined with reference to the profits of the business. The Court discussed whether the commission was paid out of profits, considering the profit and loss account of the firm. The Court also addressed the distinction between actual profit and assessable income, ultimately assuming, without deciding, that the commission was paid out of profits.

The second condition stipulated that the sum paid should not have been allowed as a deduction due to the mode of payment or determination. The Court acknowledged this condition but noted that it was not raised before the lower authorities, refraining from basing the decision on this ground.

The third condition required income-tax to be assessed and charged under the head 'business' on the sum paid as commission but not allowed as a deduction. The Court delved into the meaning of 'charged' in the context of the notification, emphasizing that it goes beyond mere statutory liability to pay tax and includes the actual charge or levy. As the firm's income had not been assessed to tax and no tax had been levied, the third condition was not fulfilled, leading to the conclusion that the employee could not claim relief under the notification.

In conclusion, the Court answered the referred question in the negative, disallowing the appeal and awarding costs to the appellant. The judgment clarified the conditions for claiming exemption under the notification and applied them to the case at hand, ultimately determining that the employee was not entitled to relief based on the unmet conditions regarding the assessment and charging of income-tax on the commission income disallowed to the firm.