COMMISSIONER OF INCOME TAX Vs. H V YAZDI

JUDGEMENT

(1.) We are concerned in this case with the question arising in connection with the assessment years 1966-67 and 1967-68 for which the relevant accounting years ended on the 31st March, 1966, and the 31st March, 1967, respectively. The assesses is an individual. He was, in the relevant years, a branch manager of Messrs. Iran Tea Trading Co. Private Ltd. During the two years under consideration the assessee had received commission in lieu of salary and, therefore, according to the Income-tax Officer, the assessee was not entitled to any exemption under Section 10(13A) of the Income-tax Act, 1961, in respect of the house-rent allowance received by him from Messrs. Iran Tea Trading Co. Private Ltd. The assessee had received house-rent allowance of Rs. 6,600 in each of the two years under consideration. The Income-tax Officer included the same in the respective assessments for the two years. There were appeals before the Appellate Assistant Commissioner. It appears that before the Appellate Assistant Commissioner it was not disputed that there was the relationship of employer and employee as between the assessee and Messrs. Iran Tea Trading Co. Private Ltd. It was, therefore, considered necessary that the amount received as commission by the assessee was to be assessed under the head " Salary ". It was found by the Appellate Assistant Commissioner that the assessee was appointed on the 1st of February, 1963, on a monthly salary of Rs. 1,100 all inclusive and the terms of appointment were changed by an agreement dated the 24th March, 1965. By virtue of the said subsequent agreement, the assessee was to receive remuneration of a sum styled as commission equal to 10% of the net profits of the income in lieu of fixed salary and the assessee was also entitled to a house-rent allowance of Rs. 550 per month with effect from the 1st of April, 1965. The Appellate Assistant Commissioner found that the rules prescribed in the Act denned the term "salary" and, therefore, the definition of "salary" under Section 17 did not hold the field. Accordingly, he held that Rule 2A of the Income-tax Rules, 1962, would be applicable. The Appellate Assistant Commissioner also considered the dictionary meaning of the term "salary". According to him, the term "salary" did not include any sum in the nature of commission, which could be determined only after the accounting year of the employer. The Appellate Assistant Commissioner further found that the assessee was not entitled under the agreement dated 21st March, 1965, to any minimum commission. Accordingly, he was of the opinion that the assessee was not entitled to any deduction under Section 10(13A) of the Income-tax Act, 1961. He, accordingly, dismissed the appeals.

(2.) There was a further appeal before the Tribunal. According to the Tribunal, in view of Section 17 of the Act giving a wider definition to the term " salary ", the same should be read along with the special definition of the term " salary " as given in the different rules for the purposes of special exemption. In the view of the Tribunal the meaning of the word " salary " could not be restricted merely to periodical payments for services rendered by an employee to his employer. The Tribunal, therefore, accepted the assessee's contention and held that the assessee was entitled to exemption under Section 10(13A) of the Act.

(3.) Upon this, under Section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court :