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TMI Blog1970 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... tes to the assessment year 1957-58, the relevant previous year being the calendar year ended on December 31, 1956. The question referred is: "Whether the assessee's contention that the sum of Rs. 60,000 is exempt from assessment by virtue of Finance Department notification No. 878(F), dated March 21, 1922, is tenable ?" The material facts are these. The assessee in the relevant year was a firm of two partners with equal shares and it was accorded registration in the year of account. The assessee-firm was appointed as the managing agent of Messrs. Dholpur Glass Works Ltd., a public company, under an agreement dated February 18, 1945. In terms of this agreement the assessee-firm was entitled to receive an office allowance of Rs. 1,000 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company prior to March 31, 1956, the managing agents of the company be and are hereby paid a sum of Rs. 60,000 over and above their usual remuneration to which they are entitled as detailed below on account of: (1) Recognition of their past services and putting the factory on sound footing: (2) Their past sacrifices as per wishes of the board of directors in forgoing their remuneration of Rs. 72,000 from 1948 to 1953, and interest on loans advanced to the company by them for several years from 1948 to 1951, as also their commission in the years 1946 and 1947. Rs. 40,000 out of the profits of the calendar year 1955, and that necessary entries for payment of this sum be passed in the books of the company as at December 31, 1955. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office was situated in the factory premises and it did not incur any separate expenses out of its pocket for the same. (iv) That the payment was not made on any commercial footing and cannot be said to be wholly and exclusively for the purpose of the business. (v) That the payment was made out of the net profits of the company and was not charged to the profit and loss account." It further appears from the report of the case that Messrs. Dholpur Glass Works Ltd. preferred an appeal against the disallowance before the Assistant Commissioner but the appeal was rejected on the ground that the payment had been made for something which had happened in the past and which had not been incurred for the purpose of the business carried on durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expenditure, and (ii) whether the expenditure can be deemed to have been incurred in the accounting year. The expenditure thus does not fall within section 10(2)(xv) of the Act and the Tribunal was right in disallowing the claim. Our answer to the question is thus in the affirmative. From what has been set out above, it would appear that the learned judges of the Rajasthan High Court, who answered the reference made by the Tribunal, rejected the claim put forward by Dholpur Glass Works Ltd. for the deduction of Rs. 60,000 paid to its managing agents, namely, Messrs. Agarwal Brothers, only on the ground that the expenditure did not come within the purview of section 10(2)(xv). It would also appear that neither the Appellate Assistant Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such sums shall not be exempt from the payment of super-tax unless they are paid to the assessee by a person other than a company and have already been assessed to super-tax." Referring to the terms of the notification, the Supreme Court observed in the case of Commissioner of Income-tax v. M. K. Kirtikar, that exemption from taxation in respect of a sum received by an assessee from a business on account, inter alia, of commission can be claimed only on three conditions, namely: (1) where such sum has been paid out of or determined with reference to the profits of the business; (2) where by reason of such mode of payment or determination the sum paid has not been allowed as a deduction but has been included in the profits of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on the ground that the expen diture was not wholly and exclusively laid out for the purpose of the business of Messrs. Dholpur Glass Works Ltd. The High Court did not sustain the disallowance on the ground that the payment had been made out of the net profits of the company. An assessee is entitled to the exemption under the Finance Department Notification aforesaid only if all the three conditions, set out above, are fulfilled, including condition No. (2) which is that the amount in question had not been allowed as a deduction on the ground that it had been paid out of or determined with reference to the profits of the business. As the claim for deduction by Messrs. Dholpur Glass Works Ltd. was disallowed by the High Court on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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