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TMI Blog1959 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... nual managing agency commission and also a salary of ₹ 1,000 per month. The salary was later increased to ₹ 2,000 per month because Chidambaram, who was the director-chairman of the company, retired from active management and the assessee was saddled with higher burden and responsibilities . In completing the assessment of the company for the assessment year 1946-47, the taxing authorities disallowed the salary paid to the assessee in excess of ₹ 1,100 as a business deduction. In the assessment years 1947-48 and 1948-49 the taxing authorities disallowed the claim of the company for ₹ 8,700 and ₹ 7,500 respectively out of the salary paid to the assessee as, in their view, it was not an expenditure laid out or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government under section 60 of the Indian Income-tax Act, 1922? Mr. Joshi for the Department contends that the view taken by this court in M.K. Kirtikar's case ( supra) has now been overruled by their Lordships of the Supreme Court and, therefore, the judgments in R.R. Jacque's case (supra) and M. K. Kirtikar v. Commissioner of Income tax [1955] 28 ITR 908.are overruled and no reliance can be placed upon the principle of those cases in support of the view that the two amounts referred to in the question are not liable to be taxed in the hands of the assessee. The notification issued by the Government of India on March 21, 1922, as amended on March 24, 1928, in so far as it is material stands as follows: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; business'. The purpose of the notification was undoubtedly to avoid double taxation of the same profits. If the amount was paid out of or determined with reference to profits, and was assessed and charged in the hands of the employer, the same was not to be assessed and charged over again in the hands of the assessee. There can be no dispute that the two amounts referred to in the question have been disallowed as permissible deductions in the computation of the profits of the company and income-tax has been assessed and charged thereon from the company. On the scheme of the notification, it is evident that it is only where the sum paid is out of or determined with reference to the profits of the business and that by reason of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Nor is it that by reason of the mode of payment or determination of the salary so paid that the deductions have not been permitted. The three conditions under the notification being cumulative, if one or more of the conditions are not fulfilled, evidently, the assessee cannot claim the benefit of the notification. But Mr. Mehta, who appears on behalf of the assessee, contends that their Lordships of the Supreme Court in Commissioner of Income-tax v. M.K. Kirtikar [1959] 36 I.T.R. 360did not decide the question whether salary paid at a stipulated rate to an assessee can be regarded as a sum paid out of or determined with reference to the profits of the business; and we are bound by the decision in Commissioner of Income-tax v. R.R. Jacq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification, and observed that on the view that they took it was not necessary to express any opinion on the question whether the commission had been paid out of the profits and it was also unnecessary to consider whether the second condition was fulfilled, but, in their view, the third condition not having been fulfilled, the assessee could not claim relief under the notification. Evidently, this case does not decide the question whether to the salary paid to an assessee by his employer, which is disallowed in the assessment of the employer by the Income-tax Department, exemption granted by the notification will be attracted. In Commissioner of Income-tax v. R.R. Jacques Income-tax Reference No. 30 of 1953 decided on March 11, 1954 (Unre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Payment by the employer of a sum of money to his employee as bonus is in its very nature gratuitous. It is made as a payment ex gratia having regard to the profits earned by him in his business and the services rendered by the employee, and in its very nature bonus is a payment out of the profits or determined with reference to the profits and is related directly to profits and is not deducted before ascertainment of the profits. R. R. Jacques's case: is clearly distinguishable from the facts of the present case. In the present case, if the salary paid to the assessee is to be deducted from the gross earnings of the company before ascertaining the commercial profits, the payment to the assessee is not out of or determined with refere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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