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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 ..... tment 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 mensem and a managing agency commission of 12 1/2% of the net profits per annum of the company. During the calendar years 1946 and 1947 the managed-company, namely, Messrs. Dholpur Glass Works Ltd., earned considerable profits and in the next three years, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. Rs. 20,000 out of the profits from January 1, 1956, to March 31, 1956. In the assessment for the relevant year, namely, assessment year 1957-58, the managed-company, namely, Dholpur Glass Works Ltd., claimed a deduction in respect of the sum of Rs. 60,000 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 during the year under consideration. Thereupon, Messrs. Dholpur Glass Works Ltd. filed a second appeal before the Appellate Tribunal. The Tribunal confirmed the decision of the Appellate Assistant Commissioner holding that the payment of Rs. 60,000 amounted to double remunerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Commissioner, nor the Appellate Tribunal, nor the learned judges of the Rajasthan High Court, dealt with the fifth ground of disallowance given by the Income-tax Officer in his assessment order, namely, that the payment was made out of the net profits of the company and was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 business; and (3) where on the sum so disallowed in the computation of the profits of the business, income-tax has been assessed and charged under the head 'Business'." The Supreme Court also observed that these three conditions are cumulative and all of them have to be fulfilled be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 that Rs. 60,000 had not been laid out wholly and exclusively for the purpose of business it must follow that all the conditions mentioned in the Finance Department Notification are not fulfilled in the present case. The Tribunal was, therefore, justified in taking the view it did. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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