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TMI Blog1954 (3) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... the 14th April, 1947, Ramaswami was entitled to a monthly salary of ₹ 1,500 besides a commission calculated at 10% of the net profits. For the assessment years 1949-50 and 1950-51, with which we are now concerned, the company was assessed to income-tax and in respect of those years, the company claimed that they were entitled to deduct the salary and commission paid to Ramaswami as per the resolution of the company referred to above. The Income-tax Officer disallowed the claim for the commission on the ground that it was a distribution to the managing director of the profits of the company, that is it was practically sharing of the profits between the managing director and the company and that, therefore, it was not a permissible dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble deduction. Ramaswami filed an application before the Commissioner of Income-tax under Section 33-A of the Income-tax Act to revise the order of the assessment and to exempt the payment of tax on the commission paid to Ramaswami, which was included in the assessment years 1949-1950 and 1950-1951. The ground on which the exemption was claimed was that the case was within the purview of the Notification 878-F Income-tax, dated 21st March, 1922, as amended from time to time. The relevant part of the Notification is as follows :- The following classes of income shall be exempt from the tax payable under the said Act, but shall be taken into account in determining the total income of an assessee for the purposes of the said Act:- (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company, which have been placed before us, we are satisfied that the commission payable to Ramaswami was paid out of the profits of the company, and the quantum was also determined with reference to the profits of such business. But the real question is whether the disallowance by the Department of the deduction was by reason of such payment or determination, in which case alone the assessee would be entitled to relief under the Notification. It is a well established principle that, if there is a mere sharing of the profits, a share in the profits given to a person cannot be deducted as expenditure laid out or expended wholly or exclusively for the purpose of such business; and it could not be allowed as a permissible deduction ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance of the claim made on behalf of the company to deduct the commission paid to Ramaswami was only on the ground that it was a division of the profits. We therefore, think that the assessee undoubtedly within the purview of the Notification granting exemption, and the Commissioner of Income-tax had misdirected himself and failed to exercise the jurisdiction vested in him by law. Further, there is an error apparent on the face of the record, as, on the facts found, the rejection by the Commissioner of the petition by Ramaswami was not justified in law. For these reasons we think that the application must be allowed and the Commissioner of Income-tax directed to restore the petition to his file and dispose of it according to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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