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TMI Blog1959 (5) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, allowed. - - - - - Dated:- 7-5-1959 - Judge(s) : BHAGWATI., HIDAYATULLAH., S. R. DAS JUDGMENT The judgment of the court was delivered by DAS, C. J.--This is an appeal by special leave from the order of the High Court of Judicature at Bombay passed on September 22, 1955, on a reference under section 66(1) of the Indian Income-tax Act (XI of 1922, hereinafter referred to as "the said Act") made by the Income-tax Appellate Tribunal whereby the High Court answered the question of law referred to it by the Tribunal in the affirmative. The respondent was an employee of Dadajee Dhackjee and Co., Bombay (hereinafter referred to as "the firm"). The firm used to pay to each of its three employees, including the respondent, a commission of one per cent. on its total annual turnover in its Colour Department in addition to their respective salaries. In connection with the assessment of the firm's income for the assessment year 1945-46, for which the accounting year was Sambat 2000 (covering the period between October 30, 1943, to October 17, 1944), the Income-tax Officer found that the profit and loss account of the Colour Department of the firm had been debited wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm for relief under section 25(4) of the said Act, as the business of the firm had been taken over by a private limited company, Dadajee Dhackjee and Co. Ltd., as a going concern with its assets and liabilities from the Sambat year 2001. As the firm had been assessed under the Income-tax Act, 1918, and as notice was duly given on June 4, 1945, about the discontinuance of the business, the Income-tax Officer held that the firm was entitled to the relief claimed and accordingly allowed the same. On March 19, 1949, the respondent submitted returns for the assessment years 1944-45, 1945-46, 1946-47, 1947-48 and 1948-49. In connection with the assessment years 1944-45 and 1945-46, the respondent claimed that, as in the assessment of the firm during the years 1944-45 and 1945-46 two-thirds of the commission paid to him for Sambat years 1999 and 2000 had been disallowed and taxed in the hands of the firm, he was entitled to an exemption from income-tax and super-tax on the commission so disallowed to the firm and on which the firm had paid the tax. As already stated the respondent's share of commission disallowed to the firm in respect of the assessment year 1945-46 was Rs. 18,787. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been paid out of the profits and that, as on computation the amount of income was assessable, it became immediately liable to tax under section 3 and was, therefore, statutorily charged to tax. The High Court having refused to grant a certificate of fitness for appeal to this court, the Commissioner of Income-tax, Bombay, applied for and obtained from this court special leave under article 136 of the Constitution to appeal to this court. The short and simple question in this appeal is whether, on a true construction of the notification, the respondent is entitled to the relief. A perusal of the notification clearly indicates that exemption from taxation in respect of the sum received by an assessee from a business on account, inter alia, of commission can be claimed only on three conditions, namely : "(1) Where such sum has been paid out of or determined with reference to the profits of the business ; (2) Where by reason of such mode of payment or determination the sum paid has not been allowed as a deduction but has been included in the profits of the business ; and (3) Where on the sum so disallowed in the computation of the profits of the business, income-tax ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to express any opinion on this question and we shall assume, without deciding, that the commission had been paid out of the profits. 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 deal to be said for this view. But here, again, the matter does not appear to have been raised either before the Income-tax authorities or the High Court and we cannot, therefore, base our decision on this ground. The third condition for successfully claiming relief under, the notification is that income-tax should be shown to have been "assessed and charged under the head business" on the sum paid as commission but not allowed as a deduction. In asc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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