TMI Blog1971 (8) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... arpet Manufacturers (India) Private Ltd. in respect of sale of yarn, cloth and blankets manufactured by the said company. The assessee was receiving commission as selling agent and over and above that commission, it started receiving overriding commission at 21 per cent. on the total sales effected. The overriding commission thus received by the assessee is as follows : Assessment year Amount received Rs. 1960-61 35,964 1961-62 61,818 1962-63 83,922 1963-64 1,13,449 The turnover of the assessee increased from Rs. 39.99 lakhs during the year relevant to the assessment year 1962-63 to Rs. 54.28 lakhs during the year under consideration, namely, 1963-64. The assessee-firm paid during the previous year relevant to the assessment year 1963-64 to each of its employees, Gurandittamal and Sahibdiyal, commission @ 1/2 per cent. on the sales effected out of the overriding commission received by it from Messrs. Oriental Carpet Manufacturers (India) Private Ltd. It may be mentioned that these two employees were receiving salary at Rs. 1,000 per month from the assessee-firm. The Income-tax Officer, for the assessment year in question, computed the total income of the firm at Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no proof to show that any services were rendered by the employees to justify the payment of commission of 1/2 %. No such commission was ever paid in the earlier years. It is argued that the turnover in the year of account had gone up by about Rs. 15,00,000 and that the increase in turnover was due to extra efforts of the two employees and that should be taken as proof of extra services rendered. From a chart filed before us it is seen that in the assessment year 1962-63 the turnover was Rs. 39.99 lakhs and the commission received, Rs. 2.62 lakhs. In the year of account the turnover had gone up to Rs. 54.28 lakhs and the commission to Rs. 3.50 lakhs. There is absolutely nothing to show that the increase in the turnover was as a result of the extra efforts rendered by these two employees. Therefore, the presumption should be that the turnover had increased on its own accord on account of intrinsic strength of the fabrics sold and the goodwill of the company. Furthermore, a study of the trend of the turnovers in the earlier years would show that in the assessment year 1961-62 the turnover was Rs. 28.15 lakhs and the turnover in 1962-63 had gone up to Rs. 39.99 lakhs, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his contention on the decision of the Madras High Court in Mysore Fertiliser Company v. Commissioner of Income-tax and of the Gujarat High Court in Laxmandas Sejram v. Commissioner of Income-tax. In fact, the decision in Mysore Fertiliser Company's case was noticed by the learned judges of the Gujarat High Court. In particular, the learned counsel placed his reliance on the following observations in Laxmandas Sejram's case : Turning now to section 10(2)(x) it is apparent that three tests are laid down in the section for the purpose of determining the reasonableness of the commission paid to an employee. The question whether the amount of the commission is a reasonable amount or not has to be determined with reference to three factors. But, it is now well-settled that these factors have to be considered from the point of view of a normal prudent businessman. The reasonableness of the payment with reference to these factors has to be judged not on any subjective standard of the assessing authority but from the point of view of commercial expediency (vide Mysore Fertiliser Co. v. Commissioner of Income-tax). Now, let us see whether this approach has been adopted by the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfied. The principal requirement of the section is that services should have been rendered, or to use the phraseology of the statute, for services rendered. There is no evidence as to what was the work and its nature that was carried on by these two employees vis-a-vis the assessee. This was a matter which was fully within the knowledge of the assessee. Evidence could have been led by the assessee to show what was the nature of services rendered by these two employees. Only a bald statement was made before the Income-tax Officer that these employees were rendering service's and the commission had increased by reason of the extra services rendered by them. The department took the view that the increase should be in the normal course of events and unless the increase was inter-related with the services rendered by the employees, no case would be made out under section 36(1)(ii). In any event, on the material on the record two views are possible. One is that the increase may have been because of the services rendered by the two employees and equally possible is the view that it may have been in the normal course of business, that is, in the course of business by reason of the incre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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