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TMI Blog1971 (8) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... p firm. It holds the sole selling agency of Messrs. Oriental Carpet 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 pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the pay of the employee, the profits of the business and the general practice in similar business or profession. But, when this section says that any sum paid to an employee as bonus or commission for services rendered is to be allowed it means that before the claim is allowed there should be proof to show that some services were rendered for which the payment is made. If there is no proof to show that services were rendered, it appears to us that this section becomes inapplicable. In this connection the Income-tax Officer had pointed out that there was no proof of any services being rendered by these two employees. In view of that finding the bonus or commission paid cannot be said to be for the purpose of business. Further, clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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., an increase of about Rs. 11 1/2 If lakhs ; still no commission was paid. Similarly, there was an increase of about Rs. 12 lakhs in the turnover for the assessment years 1960-61 and 1961-62 and there also no commission was paid. Similarly, the turnover from the assessment years 1959-60 to 1960-61 had increased by about Rs. 15 lakhs and still no commission was paid. Even though there was an incre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is that it was not incumbent on the assessee to show that any extra work was put in by the employees for which they were allowed 1/2 per cent. commission. In fact the employees were in the service of the assessee and thus were working. In that sense they had rendered their services. It is also maintained that, from the circumstances of the case, it should have been held that the commission in dispute was a permissible deduction under section 36(1)(ii). Learned counsel relies in support of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was required to do under the agreement was in no way greater or more onerous than that which he was doing before, but there are, as observed by the Madras High Court in Mysore Fertiliser Co. v. Commissioner of Income-tax, 'obvious limits to the exaltation of this plea to a rigid and inflexible principle in deciding on the basis of commercial expediency of what constitutes reasonable expenditure ..... under section 10(2)(x)'. If this argument were pushed to its logical extreme, even payment of bonus or any commission at all would have been unreasonable which the revenue authorities obviously did not so regard. Of course this circumstance would undoubtedly have some relevance but it must be considered along with other circumstances and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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