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TMI Blog1959 (12) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... h revised the scale of remuneration. The petitioner was to get thereafter one per cent. of the annual turnover, if it exceeded ₹ 24 lakhs, subject to the minimum of ₹ 750 a month. For the period between July 1, 1949, and June 30, 1950, the petitioner was paid a sum of ₹ 33,146, as remuneration under the revised agreement, as the turnover amounted to ₹ 33,14,620. Swami and Co. claimed this payment as an admissible item of deduction in the assessment proceedings for 1951-52. The Tribunal ultimately held that only a deduction of ₹ 16,573 was admissible in computing the taxable profits of the employer, Swami and Co. The petitioner was, however, assessed on the actual receipt of ₹ 33,146, which was apportioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been paid out of, or determined with reference to, the profits of such business, and by reason of such mode of payment or determination, have not been allowed as a deduction but have been included in the profits of the business on which income-tax has been assessed and charged under the head 'business' . . . The agreement between the petitioner and his employer did not provide for a determination of the petitioner's remuneration with reference to the profits of the business of the employer. It should be remembered the agreement specifically provided for the determination of the remuneration payable to the petitioner-employee on the basis of the gross turnover of the business. To satisfy the requirements of the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which income-tax was charged under the head business so far as the employer was concerned. That the petitioner's employer was assessed to income-tax on the claim disallowed, that is, on the difference between ₹ 33,146 and ₹ 16,573 was never in dispute. But what is the ground on which the claim of the employer, Swami and Co., was disallowed is the question for determination. In the appeal preferred by Swami and Co., the Tribunal stated : It is clear that the whole arrangement is a very artificial one. The business though ostensibly in the name of the wife (she) is more or less a mere name-lender. At best, it is an arrangement in the nature of a partnership between the husband and the wife, where the wife has broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount had not been an expenditure incurred by Swami and Co. wholly and exclusively for the business the proprietrix carried on. Both the Income-tax Officer and the Commissioner took the view, that as the disallowance in the assessment proceedings of the employer, Swami and Co., was not on the ground that it was in effect a case of division of profits but on the ground that the requirements of section 10(2)(xv) had not been satisfied, the claim of the assessee did not fall within the scope of the notification. In other words, the finding of the Income-tax Officer and the Commissioner in effect was that the third of the tests was not satisfied and that it was not by reason of such mode of payment the amount in question was not allowed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of Swami and Co. In Commissioner of Income-tax v. M.K. Kirtikar [1959] 36 ITR 360 the Supreme Court observed at page 364 : The second condition, which appears not to have been noticed by the High Court, is that the sum paid out of profits or determined with reference to the profits of the business had not been allowed as a deduction ' by reason of such mode of payment or determination '. In this case, learned counsel for the Department urges, the amount was disallowed not because it had been paid out of profits or had been determined with reference to the profits of the business, but because he held it to be excessive and unnecessary and not a permissible deduction under section 10(2)(xv) of the said Act. There is good d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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. Jacque's case (supra) 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 reference to the profits of the business. Again, the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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