TMI Blog1953 (8) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the taxing department, but from 1996, when the bonuses went up to ₹ 22,751, the Income-tax Officer refused to allow the full bonus and allowed only a part of it. Then the case of the assessee firm is that in 1998 an agreement was arrived at under which Sarabhai was to be paid a salary and a certain commission on profits, and in respect of Samvat years 1998, 1999, 2000 and 2001 a claim was made by the assessee firm that as the emoluments were paid to Sarabhai under an agreement, whatever was paid was a permissible deduction. This claim was rejected by the taxing authorities and ultimately the Tribunal also refused to allow the full amount of the emoluments to which Sarabhai was entitled under the alleged agreement. The view take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure fall under Section 10(2)(x) in the sense that it is an expenditure in the nature of bonus or commission paid to an employee for services rendered, then its validity can only be determined by the test laid down in Section 10(2)(x) and not the test laid down in Section 10(2)(xv). Perhaps Mr. Palkhivala is right that the question of reasonableness does not arise in the case of Section 10(2)(xv). If the Court is satisfied that an expenditure is laid out or expended wholly and exclusively for the purpose of the business, then the question of reasonableness would be a question of commercial expediency which must be determined by businessmen and not by taxing authorities. But when we turn to Section 10(2)(xv), every bonus or commission is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission on profits or on production or on sales or whatever the agreement may be. But whether the payment of the bonus or commission is voluntary or contractual, if an employee is remunerated in the manner laid down in Section 10(2)(x) then such an emolument is a permissible deduction only if the emolument is of a reasonable amount, and therefore what we have to consider in this case and what the Tribunal had to consider, is whether the amount to which Sarabhai was entitled under the alleged agreement was a bonus or commission of a reasonable amount. Now, the Legislature itself has laid down the tests to determine whether a bonus or commission is of a reasonable amount, and the tests laid down by the Legislature are that while determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration the factors mentioned in clauses (b) and (c). Now that, with respect to the Tribunal, is a totally erroneous view of the law. It may be that considering the factor referred to in clause (a) the commission or bonus may be unreasonable. It may be that taking the factor mentioned in clause (b) again the commission or bonus may be unreasonable; but if the Tribunal were at the same time to consider the factor mentioned in clause (c) and pay attention to all the factors at the same time under clauses (a), (b) and (c), the Tribunal may come to the conclusion that the bonus or commission or any portion of it was a reasonable bonus or commission; and therefore it is not a proper legal approach to determine the reasonableness of the commis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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