1967 (7) TMI 6 - SC - Income Tax

Assessee was an agent of a company and was in receipt of a certain percentage of sale as commission - assessee-company held an office or employment of profit comes within the meaning of s. 4(3)(vi) - legislature by the amendment made it clear that only the expenses actually incurred by the assessee will be exempted under s. 4(3)(vi). Revenue s appeal allowed

Summary

Issues:
1. Interpretation of Section 4(3)(vi) of the Indian Income-tax Act, 1922 regarding the exemption of special allowances.
2. Determination of whether a portion of the selling agency commission received by the assessee company is exempt from tax under Section 4(3)(vi) of the Act.

Analysis:
The case involved an agreement between a company and a selling agent for the sale of dyes and dye-stuffs. The selling agent was entitled to a commission, which was later modified to include a specific amount as compensation for certain expenses. The company received a selling agency commission, and the Income-tax Officer included a portion of it in the taxable income. The issue was whether this portion was exempt under Section 4(3)(vi) of the Income-tax Act, 1922. The Tribunal initially referred a question to the High Court regarding the nature of the company's employment, but the Commissioner sought clarification on the exemption issue.

The High Court of Gujarat held that the 5% commission received by the company was a special allowance to meet specific expenses and therefore exempt from tax. The Court also determined that the company held an office or employment of profit. The Commissioner appealed to the Supreme Court challenging the High Court's decision. The Supreme Court analyzed the provisions of Section 4(3)(vi) and emphasized that the allowance must be granted to meet expenses wholly and necessarily incurred in the performance of duties. The Court disagreed with the interpretation by the Bombay High Court in a previous case and referred to a judgment by the Allahabad High Court for guidance.

The Supreme Court clarified that the exemption applies only to expenses actually incurred by the assessee. The Court highlighted the importance of the purpose for which the allowance is granted and the need for the expenses to be wholly and necessarily incurred in the performance of duties. The Court also noted a legislative amendment that clarified the exemption for expenses actually incurred. Ultimately, the Supreme Court allowed the appeal, discharging the High Court's answer and ruling that the portion of the selling agency commission exempt under Section 4(3)(vi) must be wholly and necessarily incurred in the year of account for the performance of duties.

In conclusion, the judgment provided a detailed analysis of the interpretation of Section 4(3)(vi) of the Income-tax Act, focusing on the exemption of special allowances granted for specific expenses incurred in the performance of duties. The Court's decision clarified the conditions for exemption and provided guidance on determining the tax treatment of such allowances in employment scenarios.