COMMISSIONER OF INCOME TAX Vs. INDOKEM PRIVATE LIMITED

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"). The short question that falls for our consideration in this reference is whether the bonus and commission paid by the assessee to its employees during the accounting year ending on March 31, 1964, is covered by the expression "benefit or amenity or perquisite" used in S. 40(c)(iii) of the Act, and, therefore, can be disallowed as a revenue expense under the Act.

(2.) THE assessee is a private limited company carrying on business in dyes and chemicals. It paid to its employees salaries, dearness allowance and bonus. Some of the employees were also paid commission and bonus. There was no written agreement for the payment of the bonus or commission, and the percentage of commission paid to the employees varied from year to year and from employee to employee. In the course of the assessment proceedings for the asst. year 1964 65, the relevant previous year being the year ending on March 31, 1964, the ITO called for the details of the salary, dearness allowance, bonus and commission paid to the employees who had been paid in all more than Rs. 7,500 per annum. The ITO took the view that the provisions of S. 40 (c)(iii) were applicable to the said payments, and proposed to disallow a portion in excess of one fifth of the total emoluments. The assessee company contended that the provisions of the section were not applicable to the said payments, since the same were in cash and were not covered by the expression "benefit or amenity or perquisite". The ITO rejected the said submission and calculated the excess in the case of the 22 employees to whom the payments were made. The total amount worked out by the ITO was Rs. 18,914. He, however, took one twelth of the said amount, viz., Rs. 4,970 (?), the relevant provision being operative from February, 1964, and the assessee's accounting year being the year ending on March 31, 1964.

(3.) THAT is how the present reference has come up before us for final hearing. Since the answer to the question depends upon the interpretation of the phrase "any benefit or amenity or perquisite" occurring in the said sub cl. (iii) of cl. (c) of S. 40 of the Act, it will be helpful for a correct conclusion on the point to know the history of the said clause. When the Finance Act, 1963, for the first time added the said cl. (c)(iii) to S. 40 which came into effect from 1st April, 1963, it ran as follows :