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TMI Blog1961 (10) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment of the employer for the assessment year 1949-50, for the account year ending 31st January, 1949, the employer, inter alia, claimed the aforesaid payment of commission as revenue deduction. The claim of the employer was rejected by the Income-tax Officer on the ground that the payment of commission is only a way to reduce his income and his tax liability . As the employer did not carry the matter any further to the Appellate Assistant Commissioner or the Tribunal, the aforesaid order of the Income-tax Officer was the final order in the assessment of the employer for that year. The assessee in his assessment claimed that inasmuch as the payment of the said commission was disallowed to the employer in his assessment on the ground that it was only a way to reduce his income and his tax liability and inasmuch as the said amount had been charged to tax in the hands of his employer, he was entitled to exemption from payment of tax on the said amount of commission of ₹ 2,45,557. The claim was made on the strength of the Notification No. 878-F, dated 21st March, 1922, as amended by Notification No. 8, dated 24th March, 1928. We would hereafter refer to this notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same should not be assessed and charged over again in the hands of the assessee (employee) . It is not in dispute that the third condition has been fulfilled in this case. On the said amount of commission of ₹ 2,45,557 disallowed in the computation of the profits of the business of the employer, income-tax has been assessed and charged under the head business in the hands of the employer. The dispute between the department and the assessee is confined as to whether the first and the second conditions have been fulfilled. It is the contention of Mr. Joshi that, having regard to the agreement between the employer and the assessee, the payment of commission of half per cent. on all the sales of the employer is irrespective of the employer's making any profit. It is in fact a prior charge before the employer's profits are arrived at. It, therefore, cannot be said that the commission paid to the assessee by the employer was paid out of profits of the business or determined with reference to the profits of the business. The first condition, therefore, according to Mr. Joshi, has not been fulfilled in this case. It is also Mr. Joshi's contention that the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed at ₹ 4,11,084. Thereafter, the employer ceased to do business and by reason of section 25(4) the employer did not pay tax on the said assessed income. The assessee, in his own assessment, claimed exemption from tax on the proportionate amount of commission received by him on the strength of the Notification. His claim was disallowed by the income-tax authorities as well as by the Tribunal. It was allowed by this court. This court on the first question held that, even though commission paid to an employee was calculated at a certain percentage on the gross turnover, it would be exempt under the Notification if it was in fact paid out of profits. At page 912, it was observed: The mode of computation of the commission of the assessee was undoubtedly 1 per cent. of the turnover. What the Finance Department Notification requires is that the source out of which this commission is paid is the profit of the employer and there is no finding before us that in fact this commission was not paid out of the profits. One has only to look at the assessment order to be satisfied that this commission in fact was paid out of the profits. As we pointed out the total income under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arying between 2 to 5%. The merchants use their own quotas and open letters of credit also. The bills of lading are made out in the names of respective merchants. In the case of Italisca the goods are sold at the very rate at which they are purchased as the assessee is given 2% discount by the manufacturer . These observations indicate that the trading assets of the assessee are the forward contracts made by him on the strength of his business contacts with foreign contractors. The benefits of these contracts he transferred to local merchants at a profit of 2 to 5%. This kind of business hardly required any investment of capital. The incomings of the employer's business was nothing but the profits earned by him in the sale transactions. It is out of this amount that was coming into his hands that he agreed to pay half per cent. on sales effected by him to the assessee. If there was no sale, the assessee earned no commission. If there was a sale, it only brought resulting profits to the hands of the employer. That being the factual position, there cannot be any doubt that, on the agreement between the parties, the commission paid to the assessee was paid out of the profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under section 10(2)(xv) of the Act. It is indeed true that the employer had shown in the profit and loss account payment of commission as expenses and had claimed it in his assessment as revenue expenditure and that has been disallowed. But that by itself is not sufficient to hold that the Income-tax Officer has disallowed the said sum on that ground. In view of the finding of the Income-tax Officer reproduced above, in our opinion, the ground on which this payment was disallowed falls within the second condition of the Notification. In this view of the matter, in our opinion, the Tribunal was right in holding that the assessee was entitled to exemption from payment of tax on the said amount of ₹ 2,45,557. We do not consider it necessary to deal with the other decisions referred to by counsel for the parties inasmuch as in our view the decision in each case turned on the facts of that case and none of them is a direct authority on the question which falls for our consideration in this case. Before parting with the case, it has to be said that a notice of motion was taken out by the counsel for the Commissioner for correction of the statement of the case. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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