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TMI Blog1978 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... its salesmen in terms of their contracts of employment. The assessee is a private limited company and carries on the business of manufacture and sale of duplicating machines and accessories. It has in its regular employment three categories of salesmen-machine salesmen, mixed salesmen and supply salesmen. As a term of the contract of employment between the assessee and the salesmen of the aforesaid categories, the assessee, besides paying a fixed monthly salary, also paid commission to them at fixed percentage of turnover achieved by each salesman, the rate of percentage varying according to the class of article sold and the category to which the salesman belonged. The assessee maintained a regular provident fund for its employees which was recognised by the CIT some time in 1937 and the said recognition continued and was in force during the relevant years in question. In the previous years ending 31st December, 1961, 31st December, 1962, and 31st December, 1963, relevant to the assessment years 1962-63, 1963-64 and 1964-65, the assessee made contributions, out of its own moneys, to the individual accounts of these salesmen in the said provident fund on the basis of salary and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the recognised provident fund, governed the matter and since that definition excluded all other allowances and perquisites the commission paid by the assessee to its salesmen, which was nothing but some sort of allowance, could not be regarded as salary and, on that basis, the Tribunal was pressed to accept, the contrary view taken by the AAC for the assessment year 1962-63. The Tribunal on a consideration of the rival submissions held that the commission paid by the assessee to various classes of salesmen was a part of the contractual obligation and as such was part of the salary of the employees and contributions made on that basis were liable to be deducted under s. 36(1)(iv) of the Act. It also took the view that since the provident fund maintained by the assessee was a recognised fund and since it fulfilled the condition laid down in r. 4(c) of Part A of the Fourth Schedule to the Act the contributions by the employer to the same would be entitled to deduction under the said provision. In this view of the matter, the Tribunal, by its order dated June 12, 1968, allowed the assessee's appeal and dismissed the appeals of the department. At the instance of the revenue, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice are such that commission is paid not as a bounty or benefit but is paid as a part and parcel of the remuneration for services rendered by the employee, such payment may partake of the nature of salary rather than as a benefit or perquisite", could not be availed of because the same was not in existence during the relevant years and further it had been issued under s. 40(c)(iii) of the Act and would not apply to s. 36(1)(iv). The High Court also held that the ordinary meaning of "salary" was a fixed monthly payment while "commission" was not such payment and, therefore, it could not be included within the scope and ambit of the term "salary", the meaning of which could not be extended by the assessee-company by defining it in a particular manner in its Provident Fund Scheme Rules for the purposes of recognition of its fund and deductibility as well. The High Court's view on both the questions is challenged by the assessee in the instant appeals preferred on the strength of the certificate granted by that court under s. 261 of the Act. Counsel for the assessee raised a two-fold contention in support of the appeals. In the first place, he contended that once recognition was grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its salesmen. Secondly, counsel contended that on a true and proper construction of the expression "salary" occurring in the said r. 2(h) the commission of the nature and type paid by the assessee to its salesmen under the terms of their contract of employment would be included or covered by that expression. According to him, commission in business practice covered various kinds of payments made under different circumstances and in the cases where a servant was employed by a businessman and as a condition of his employment it was agreed that he would be paid for his services at a fixed rate of percentage over the turnover, it was clear that such commission payable to the employee will partake of the character of "salary" received by him for his services, the percentage basis being the measure of the salary; in other words, according to him, there was no difference between the concept of salary and the concept of commission if the latter was of the aforesaid nature or kind and as such the expression "salary" in r. 2(h) would include such commission. In this behalf he relied upon a decision of the Allahabad High Court in the case of Raja Ram Kumar Bhargava v. CIT [1963] 47 ITR 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinued under s. 297(2)(k) of the 1961 Act wherein on the question whether the term "salary" as used in Chap. IX-A (of the old Act) included commissions and bonuses paid to the employees, the Board expressed its view that, "unless commissions and bonuses are fixed periodical payments not dependent on a contingency, they are not covered by the term 'salary' as used in Chap. IX-A of the Act". Counsel further contended that in the matter of deductions claimable in respect of contributions to the provident fund, the position of the employer could not be different from that of the employee and in regard to employee's contribution the condition required to be satisfied in r. 4(b) was to the effect that the contribution of an employee in any year shall be a definite proportion of his "salary" for that year and shall be deducted by the employer from the employee's "salary" in that proportion at each periodical payment of such salary in that year, and credited to the employee's individual account in the fund and under s. 80C read with r. 7 of Part A of the Fourth Schedule to the Act the employee is entitled to a deduction in respect of his contribution which pertains to a definite proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include any sum credited as interest." Rule 4 of Part A of the Fourth Schedule lays down the conditions which are required to be satisfied by a provident fund in order that it may receive and retain recognition, and the conditions in cls. (b) and (c) are material and these conditions are: "4. (b) the contributions of an employee in any year shall be a definite proportion of his salary for that year, and shall be deducted by the employer from the employee's salary in that proportion, at each periodical payment of such salary in that year, and credited to the employee's individual account in the fund; (c) the contributions of an employer to the individual account of an employee in any year shall not exceed the amount of the contributions of the employee in that year, and shall be credited to the employee's individual account at intervals not exceeding one year." It may be stated that so far as the employer is concerned the contributions credited by him to the employee's individual account in the fund are deductible under s. 36(1)(iv) whereas the contributions of an employee are deductible in the computation of his total income under s. 80C read with r. 7 of Part A of the Fourth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 417; 9 QBD 45 (QB), Grove J. observed as follows: "Though this word (wages) might be said to include payment for any services, yet, in general, the word 'salary' is used for payment of services of a higher class, and 'wages' is confined to the earnings of labourers and artisans." In Mohmedalli v. Union of India, AIR 1964 SC 980 ; 24 FJR 221, this court, while repelling the contention that the Employees' Provident Funds Act, 1952, was intended by Parliament to apply to employees who were mere wage earners and not salaried servants, has made observations clearly indicating that there is no difference between the two concepts of salary and wages. Chief Justice Sinha, speaking for the court, observed in para. 10 of the judgment as follows: "It is a little difficult to appreciate the distinction sought to be made. Both 'salary' and 'wages'' are emoluments paid to an employee by way of recompense for his labour. Neither of the two terms is a 'term of art'. The Act has not defined wages; it has only defined 'basic wages' as all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary or not ? The definition of "salary" in r. 2(h) includes dearness allowance if the terms of employment so provide and excludes all other allowances and perquisites. It does not in terms exclude "commission" as such and, in our view rightly, for, though ordinarily according to the Shorter Oxford English Dictionary "commission" means "a Pro rata remuneration for work done as agent", in business practice commission covers various kinds of payments made under different circumstances. In Raja Ram Kumar Bhargava v. CIT [1963] 47 ITR 680, the Allahabad High Court has pointed out how in certain circumstances commission payable to an employee may, in fact, represent the salary receivable by him for the services rendered to the employer. At page 694 of the report the relevant observation runs thus : "The word 'commission', in business practice, covers various kinds of payments made under different circumstances. There are cases where a servant is employed by a businessman and, as a condition of his employment, it is agreed prior to the services having been rendered that he would be paid for his services at a fixed rate of percentage of the turnover or profits. In such a case, it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y case, we are of the view that by the said circular what the Board wants to keep out of the term "salary" are payments by way of commissions which do not partake of the character of salary. Similarly, the decision of this court in Bridge & Roofs Co.'s case, AIR 1963 SC 1474; 23 FJR 550, on which the High Court has relied, cannot avail the revenue. In the first place, it was a case under the Employees' Provident Funds Act, 1952, where this court was required to construe the expression "basic wages" as defined in s. 2(b) of that Act and to decide whether "production bonus" was included in that expression and it was in that context that this court made observations to the effect that the said expression as defined therein did not include any bonus, commission or other similar allowances. Secondly, as against the definition of "basic wages" in s. 2(b)(ii) which excluded any dearness allowance, house rent allowance, overtime allowance, bonus, commission or any other similar allowance, s. 6 of the Act provided for inclusion of dearness allowance for the purposes of contribution and, therefore, this court was concerned with trying to discover some basis for the exclusion in cl. (ii) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provident fund of the assessee did satisfy all the conditions laid down in r. 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation we do not think that it was open to the taxing authorities to question the recognition in any of the relevant years on the ground that the assessee's provident fund did not satisfy any particular condition mentioned in r. 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the provident fund satisfies all the conditions under r. 4 of Part A of the Fourth Schedule to the Act and not sit in judgment over it. There is ample power conferred upon the Commissioner under r. 3 of Part A of the Fourth Schedule to withdraw at any time the recognition already granted if, in his opinion, the provident fund contravenes any of the conditions required to be satisfied for its recognition and if during the assessment proceedings for any particular assessment year the taxing authority finds that the provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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