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TMI Blog2012 (12) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... re that the assessee was a General Sales Agent (GSA) of Uzbekistan Airways (UA)- Uzind Corporation (UC) and received a salary of Rs. 1,32,000 per annum in that capacity. By a non-compete agreement (NCA) dated 15-03-2002, the assessee received an amount of 7% of the cargo freight and cost of tickets payable by UC to UA in addition to his regular salary. Under Clause 4 of the agreement, the commission payable to the assessee is separate from the remuneration given to him for other services provided by him to UC. It further stipulated that the relationship was on principal-to-principal basis, not intended to be construed as either a partnership or agency. 3. For assessment year 2003-2004, UC showed the non-compete fees as business expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal felt that none of the lower authorities disputed that commission received was for carrying out any activity that was related to the business. Thus the amount could only be assessed under the head of income from business. Further, an arrangement where the source follows the mercantile system of accounting and the recipient follows the cash system is well recognized and followed, and was thus not a colourable device to evade taxes. Since it is specifically assessable under Section 28 (va), it will be classifiable as income from business and not salary. Further, if UC continued to only show that the amount was credited without the assessee receiving the amount, the revenue has a right to enforce other remedial provisions in the hand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm exercised no control and supervision over him, no employer- employee relationship existed. Since control was by him, it was his business and therefore the amount was business income. It was argued that after the agreement was entered into, he began receiving amounts from UC in a dual capacity- salary in his capacity as an employee of UC and non-compete fees for not taking away business of the firm. Thus the assessee was entitled to receive the amount under the commission even after termination of employment with UC. Therefore, commission was paid out of a separate agreement which did not flow from the employer- employee relationship. It was thus taxable as a business income under Section 28(va). 8. It was also argued that the question a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him in his capacity as an employee. Consequently, all the amounts received by him should be income from business. However, that is not what he contends. Apart from this anomaly, another unexplained factor is why the assessee had to enter into a non-compete agreement with a firm that he controls. In any case, it would have been taxed under the head "income from business" under Section 28 (va). 11. UC was deducting the amount being paid under the non-compete agreement as business expenditure. However, under Section 36 (1)(iii), any amount paid as a bonus, or commission to be deductible, must only be made to employees. According to the SC decision in Shahzada Nand and Sons v. CIT [1977] 108 ITR 358 (SC) [approving Laxmandas Sejram v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by them in securing export orders for the company. The salary paid to them, according to the assessee was for the services rendered by them as employees. The assessee claimed that the commission paid had not been received by these two persons in their capacity as employees and therefore those payments were to be regarded as their business income and not as salary income.. ** ** ** 9. The facts as set out in the order of the Tribunal and in the statement of the case before us, clearly show that these two individuals were the employees of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded as part of the salary and the Tribunal was in error in holding otherwise. The mere fact that two agreements existed does not necessarily imply that the payment made under one agreement is not to be regarded as part of salary, when undisputably all the work done under the agreement was performed by the employee for the benefit of the employer. The fact that the employer utilised the same employee to perform different types of work under two separate agreements does not give to such payments a character other than that of "salary", having regard to the wide definition of the term in Section 17(1) of the Act. The Income-tax Officer was right in taking the view that the commission paid was part of the salary. 12. The respondent failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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