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C.I.T. v. Bashir Ahmad Bazaz - INCOME TAX REFERENCE No. 146 of 1987  RD-AH 1200 (2 May 2005)
Income Tax Reference No. 146 of 1987
Commissioner of Income Tax, Agra vs. Shri Bashir Ahmad Bazaz, Agra.
Income Tax Reference No. 178 of 1987
Commissioner of Income Tax, Agra vs. Shri Abdul Hamid, Agra.
Hon'ble R.K.Agrawal, J.
Hon'ble Rajes Kumar, J.
The Income Tax Appellate Tribunal, Delhi has referred the following question of law in both the references under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:-
"Whether the Tribunal was right in holding that commission received by the assessee from his employer was not part of salary income and is allowing deduction for the expenses out of the commission income to the extent of 40%?"
The present Reference relates to the Assessment Year 1979-80.
As both the assesses are employees of M/s A.Majid, 43, Mall Road, Agra and the facts of the case are also the same, we are giving the facts of I.T.R. No. 146 of 1987.
The respondent-assessee is a resident individual and enjoys income from M/s. A Majid, 43, Mall Road, Agra as salary and commission. During the course of assessment proceedings the Assessing Officer required the respondent assessee to file the copy of the agreement, if any, between him and his employer and also the details of expenses of Rs. 41,000/- claimed out of commission income of Rs. 1,02,500/-. The Assessing Officer also asked to explain as to why the commission received should not be treated as salary under Section 17(l)(iv) of the Act. In reply it was submitted that the commission had been paid for promoting export sales and to attract foreign buyers and his main source of income was from commission and the salary paid to him was only to keep him bounded so that the respondent might not engage himself in the employment of any other person or do any other business. It was stated that the details of expenses incurred has not been maintained. However, it is being claimed on estimate basis at 40%. It was also stated that as per terms and condition of the agreement the respondent was to manage the affairs of the business of M/s A. Majid, 43, Mall Road, Agra in such a way as to reach certain targets of the sales. He was to make necessary arrangements for promotion of sales to convey the foreign tourists through agencies of various representative associations and agents and has to incur expenses on persons whose services were taken for the promotion of the sales. The Assessing Officer considered the reply submitted by the respondent and he did not accept the same for the following reasons:
"(a) The assessee earns commission on the sales effected as per alleged agreement amount of which has not been shown in the previous year relevant for A.Y. 1979-80. The commission paid is Rs. 102500/-. Certificate furnished by the employer in respect of payments made for salary and commission and tax deducted at source indicated that the tax at source was also paid on commission, received by the assessee. The commission amount received as such formed part of salary under section 17(1)(iv) of I.T.Act, 1961 and is, therefore, assessable in the head salaries.
(b) Alleged agreement was between proprietor 1st party and Manager second party i.e. between employer and employee and not between the Principal and Agent.
(c) The assessee was entitled to commission in the course of employment and only for the period he looked to its business. In the previous year he was entitled to receive 2.5% on sales of goods as commission and he was required to maintain accounts of all expenses including expenses incurred in connection with the promotion of sales. It is, therefore evident that the commission received constituted income from employer in course of his employment, which was assessable as salary under section 15 of I.T.Act and not as business income.
According to shorter Oxford Dictionary the commission means Pro-rata remuneration for work done. If in terms of contract of employment the remuneration or re-compensation for the service rendered by the employees is determined at fixed percentage or turnover achieved by him then such remuneration or re-compensation will part take of character of salary (47 ITR 689 Allahabad High Court). This view has been confirmed by the Hon'ble Supreme Court in the case of Gestner Duplicators Pvt. Ltd. Vs. C.I.T. West Bengal 1979 (C.T.R.) (S.C.) 371. In view of these facts it is clear that the commission received is part of salary and will be assessed as salary."
Feeling aggrieved the respondent preferred an appeal before the Commissioner of Income Tax (Appeals) who had accepted the stand of the respondent and reduced the total addition made by the Assessing Officer by 40%. The Commissioner of Income Tax (Appeals) has held as follows:
"In my view, the action taken by the I.T.O. cannot be approved because a general reading of the preamble of the agreement leaves no doubt in my mind that the relationship that existed between the appellants and M/s A Majid was more in the nature of an agreement existing between proprietor and agent. The fact that the two appellants were getting some remuneration from M/s A Majid cannot lead to the conclusion that the commission received by them @ 2 1/2% of the gross sales mad at Agra branches was a part of the salary. It would be worth-while to reproduce Section 17(1)(iv) of the Income Tax Act, 1961in this context which is as follows:
"17(1)(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;" (emphasis supplied).
The emphasis supplied by me as above, would leave no doubt in any person's mind that unless the "fees, commission, perquisites or profits" have been received" in lieu of or in addition to any salary or wages", it cannot be treated as part of the salary and cannot be, therefore, taxed under the head "salary"."
It may be mentioned here that in the past deduction of 40% has been allowed to the respondents against the commission income earned by them. The order of the Commissioner of Income Tax (Appeals) has been upheld by the Tribunal.
We have heard Sri Shambhoo Chopra, learned standing counsel for the Revenue. No body has appeared on behalf of the respondent-assessees.
Learned standing counsel submitted that as under Section 17(1)(iv) of the Act the term salary includes amongst other the commission also, the Tribunal was not justified in holding that the commission did not form part of the salary and, therefore, deduction for the expenses to the extent of 40% was allowable.
Having given our anxious consideration to the plea raised by the learned standing counsel, we find that it is not in dispute that the respondent is an employee of M/s A Majid 43, Mall Road, Agra and during the course of employment he had to take steps for promoting export sales and attract foreign tourists. Thus, the sales effected by him was part of employment and any commission given to him by the employer is nothing but shall form part of the salary in terms of Section 17(1)(iv) of the Act.
The present case is akin to that of a Development Officer in the Life Insurance Corporation. This Court in I.T.R. No. 30 of 1989 (C.I.T. Agra vs. Shri Ganesh Chand Saxena, Agra) decided on 22nd December, 2004 has held that the commission paid to the Development Officer forms part of the salary and disallowed the deduction for expenses out of the commission income
Respectfully following the aforesaid decision of this Court we are of the considered opinion that the commission forms part of the salary and, therefore, the expenses to the extent of 40% out of the commission income of the respondent was not allowable. Accordingly, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee. However, there shall be no order as to costs.
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