BOMBAY MOTORS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE three reference applications arise in similar circumstances and raise identical questions. As such, it would be proper to dispose of them by a common order.

(2.) THE assessee is a partnership firm carrying on business in purchase and sale of automobiles and automobile parts. THE assessee firm, during the relevant assessment years 1971-72, 1972-73 and 1973-74, allowed one of its employees, Gopal Dass, a commission at the rate of 5% on the sale of automobile accessories and parts in addition to his salary. THE assessee claimed the amount of commission paid to Gopal Dass during the aforesaid assessment years as business expenditure deductible from its total income. According to the assessee, the amount of commission paid by the assessee-firm to the said employee represented the amount paid to him for the services rendered by the employee and was allowable deduction within the meaning of Section 36(1)(ii) of the Income-tax Act, 1961 ("the Act" herein). In the alternative, it was claimed by the assessee that the commission paid to Gopal Dass was expenditure wholly and exclusively incurred by the assessee-firm for the purpose of its business and was allowable under Section 37 of the Act. THE Income-tax Officer found that Gopal Dass did not render any extra service so as to entitle him for payment of commission and that there was no nexus between the services rendered by the employee and the payment made to him. As such, the claim made under Section 36(l)(ii) and alternatively under Section 37 of the Act was disallowed by the assessing authority.

(3.) IT was urged by the learned counsel for the assesee before us in these applications under Section 256(2) of the Act that the assessee had claimed that the amount of commission paid by the assessee-firm to its employee, Gopal Dass, was deductible as business expenditure under Section 36(1)(ii) of the Act and that the assessee also claimed in the alternative that if the said amount of commission is not held to be deductible as business expenditure under Section 36(1)(ii), then it should be allowed as an expenditure made wholly and exclusively for the purpose of the business of the assessee-firm under the general provision contained in Section 37 of the Act. IT was urged that as held by the Supreme Court in Shahzada Nand and Sons v. CIT [1977] 108 ITR 358, the amount paid by the assessee-firm to its employee, Gopal Dass, was deductible as business expenditure under Section 36(l)(ii) as the same was paid to the employee by way of commission for the services rendered and that no extra service was required to be rendered by the employee, Gopal Dass, so as to entitle him for payment of such commission.