9911796707
TMI Blog1977 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is a private limited company. The company is a manufacturer and seller of duplicating machines and accessories. It had different categories of salesmen in its regular employment. Besides paying salary, the company paid commission to its salesmen in terms of the contract with them. The commission varied both as to rates and different classes of sales inter se the different categories of salesmen. The company maintained a regular provident fund which was recognised by the Commissioner of Income-tax in 1937 and such recognition was in force during the relevant years. In the accounting years relevant to the aforesaid assessment years the company contributed, out of its own monies, to the individual accounts of those employees in the said provident fund on the basis of salary and commission paid to those salesmen, and claimed those amounts as allowable deductions under section 36(1)(iv) of the Income-tax Act, 1961. Out of such total contributions, the Income-tax Officer disallowed the amounts mentioned in question No. 1, for those amounts pertained to commission for the assessment years stated therein by rejecting the company's contention that since the word "commission" has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und and at any time may withdraw such recognition if, in his opinion, the provident fund contravenes any of those conditions. Clauses (b) and (c) of rule 4 run thus; "(b) the contributions of an employee in any year shall be a definite proportion of his salary for that year, and shall be deducted by the employer from the employee's salary in that proportion, at each periodical payment of such salary in that year, and credited to the employee's individual account in the fund; (c) the contributions of an employer to the individual account of an employee in any year shall not exceed the amount of the contributions of the employee in that year, and shall be credited to the employee's individual account at intervals not exceeding one year." Contribution of an employee as provided in rule 2(c) must come out of his own salary. Clause (b) of rule enjoins the employer to deduct a definite and a proportionate amount out of the employee's salary for crediting it to the employee's individual account in the fund. Since salary is earned by and belongs solely to the employee, the employer must necessarily contribute his proportionate share out of his own monies. The scheme of the Act als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "commission", as stated in Shorter Oxford English Dictionary, volume I (3rd edition), page 349, is a "pro rata remuneration for work done as agent". The salesmen of the company are in its regular employment. There is no relation as principal and agents between the company and those salesman who are not its agents but are mere servants. The meaning of the word "salary", as stated in the said dictionary, volume II, at page 1781, is a "fixed payment made periodically to a person as compensation for regular work; now used for non-manual or non-mechanical work (as opposed to wages)". Therefore, the commission in the instant case cannot in any event fall within the definition of the word "salary" in rule 2(h) of Part A of the Fourth Schedule to the Income-tax Act, 1961. The aforesaid Circular No. 6 of 1941 issued by the Board was in force during the relevant assessment years under section 297(2)(k) of the Income-tax Act, 1961. In view of the aforesaid provisions of the Act and the Circular No. 6 of 1941, including the meaning of the words "salary" and "commission", it must be held that the aforesaid sums are not deductible under section 36(1)(iv) of the Act as rightly held by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovident fund of the company inasmuch as the said word has been defined in the company's provident fund scheme. But the expression "unless the context otherwise requires" is solely referable to the provisions of Part A of the Fourth Schedule and is not at all referable to the facts and circumstances of any particular case, not even to the instant case before us and, therefore, the contention must fail. Reliance was also placed on the last paragraph of paragraph 4 of Circular No.80 dated March 4, 1972, issued by the Board. It says: "If the terms and conditions of service are such that commission is paid not as a bounty or benefit but is paid as part and parcel of the remuneration for services rendered by the employee, such payment may partake of the nature of salary rather than as a benefit or perquisite. If, however, on the terms and conditions of service either there is no obligation for the employer to pay the commission or it is a matter purely in the discretion of the employer, such payment should be treated as a benefit by way of addition to salary rather than in lieu of salary." It was argued that since the commission was paid not as bounty or benefit but in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, it cannot be included within the scope and ambit of the term "salary", the meaning of which cannot also be extended by the company by defining it in its provident fund scheme for the purposes of recognition of its provident fund and deductibility as well. It was contended finally that if the proportionate contribution pertaining to commission is held not to be an allowable deduction, it would result in an anomalous situation, namely, that the company would be bound to make proportionate contribution pertaining to commission towards the individual account of its employee in the provident fund in terms of its provident fund scheme and the taxing officers would be bound to disallow such contributions. Therefore, we were asked to remove this anomaly in favour of the company by interpreting the word "salary" used in rule 2(h) of Part A as stated in the company's provident fund scheme. But there are certain expenditures which are not deductible under the Income-tax Acts and by no means the courts can make them deductible. Further, a provident fund under the Provident Funds Act, 1952, is also a recognised fund under section 2(38) of the Income-tax Act, 1961. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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