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TMI Blog1964 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... ling agent by Ciba (India) Limited for sale of certain kinds of dye-stuffs in the territory described as the Ahmedabad District under an agreement dated 29th October, 1928. It was provided by this agreement that Tejaji Farasram Kharawala shall act for Ciba (India) Limited for sale of certain kinds of dye-stuffs for and on behalf of Ciba (India) Limited and that Ciba (India) Limited shall pay to Tejaji Farasram Kharawala 12½ per cent. commission on the net sale proceeds of the dye-stuffs sold by him or Ciba (India) Limited. This commission of 12½ per cent. included all contingency expenses which Tejaji Farasram Kharawala might have to incur in connection with the performance of his duties as selling agent of Ciba (India) Limited. It appears that the selling agency of Ciba (India) Limited was taken by Tejaji Farasram Kharawala as manager and karta of the joint Hindu family which was carrying on business in the name of Messrs. Tejaji Farasram Kharawala and the agreement dated 29th October, 1928, was, therefore, treated as an agreement between Ciba (India) Limited and Messrs. Tejaji Farasram Kharawala. On 20th August, 1935, Ciba (India) Limited wrote a letter to Messrs. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al allowance specifically granted to the assessee for the purpose of meeting any particular expenses within the meaning of section 4(3)(vi). This contention was rejected by the Tribunal which took the view that 5 per cent. was a special allowance specifically granted to the assessee for meeting contingency expenses such as commission to dyeing masters, agents, etc., which the assessee had to incur in the performance of its duties. It was then contended on behalf of the Commissioner that even if the other conditions of section 4(3)(vi) were satisfied, the assessee could not yet invoke the section in its favour since the assessee did not hold any office or employment of profit as required by the section. The Tribunal rejected this contention too, holding that the assessee, being the selling agent of Ciba (India) Limited for a particular territory, was the holder of an office of profit in the organization of Ciba (India) Limited and was, therefore, entitled to claim the benefit of the exemption granted by section 4(3)(vi) in respect of the amount of ₹ 1,90,538 received from Ciba (India) Limited. The Tribunal accordingly exempted the entire amount of ₹ 1,90,538 from tax und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Tejaji Farasram Kharawalla's case (Supra) could not possibly apply to the question referred by the Tribunal, for that question was neither argued nor decided by the High Court in that decision. But that is a matter to which we shall advert a little later. The notice of motion having been dismissed and the reference having been decided in favour of the assessee, the Commissioner made an application to the High Court for leave to appeal to the Supreme Court. The application was rejected by the High Court whereupon the Commissioner preferred an application to the Supreme Court for special leave to appeal against the judgment and order of the High Court dismissing the notice of motion and deciding the reference in favour of the assessee. Special leave was granted by the Supreme Court and the appeal came up for hearing before the Supreme Court on 8th November, 1960. From the judgment of the Supreme Court it appears that the dismissal of the notice of motion was attacked on behalf of the Commissioner and it was contended that the question which the Commissioner wanted to be referred by the Tribunal to the High Court on the notice of motion was a question which arose out of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts of the case, apportion, viz., 5%, of the selling agency commission of 12½% received by the assessee-company from Messrs. Ciba (India) Ltd., or the portion thereof which was not expended in the course of the carrying on of the selling agency business is exempt from tax under section 4(3)(vi) of the Act'? and that the said High Court on receipt of the said statement of the case Do hear and dispose of the reference in accordance with law. 2.That the costs of this appeal Shall be costs in the reference." By the time the order was made by the Supreme Court, the State of Bombay was bifurcated and the matter, therefore, came to this court, Pursuant to the order of the Supreme Court this court restored Reference No. 28 of 1954 and made an order in the reference directing the Tribunal to state a case for the opinion of this court on the question specified in the order of the Supreme Court and the Tribunal accordingly stated a. case for the opinion of this court as directed by the order. The reference is, therefore, now before us and we are called upon to dispose it of in accordance with law. The question which we have to answer on the reference is a comprehen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, binds us and following it, we reject the present contention of the learned Advocate-General. It was then contended by the learned Advocate-General that in any event 5 per cent. received by the assessee from Ciba (India) Limited did not represent a special allowance specifically granted to the assessee for meeting contingency expenses, such as, commission to dyeing masters, agents, etc., and was, therefore, not within the scope and ambit of section 4(3)(vi). The argument of the learned Advocate-General was that under the agreement dated 29th October, 1928, the commission payable to the selling agent was 12½ per cent. inclusive of contingency expenses which were to be borne by the selling agent and when the letter dated 20th August, 1935, was addressed by Ciba (India) Limited to the selling agent, all that happened was that Ciba (India) Limited agreed that out of the commission of 12½ per cent. which would be paid to the selling agent, the selling agent may treat 7½ per cent. as his own commission and 5 per cent. as compensation in lieu of contingency expenses, but that so far as Ciba (India) Limited was concerned, the commission would be 12½ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust, 1935, the commission of the selling agent was 7½ per cent. and that 5 per cent. was given to the selling agent by way of compensation in lieu of contingency expenses, such as, commission to dyeing masters, agents, etc., which the selling agent may be required to meet in the course of performance of its duties, the conclusion becomes inescapable that 5 per cent. represented a special allowance specifically granted to the assessee for meeting those expenses. The use of the word "compensation" clearly indicates that 5 per cent. was given to the selling agent in order to enable the selling agent to meet contingency expenses which were required to be incurred by the selling agent in performance of its duties and it was, therefore, obviously a special allowance granted specifically to the selling agent for the purpose of meeting such expenses. This contention of the learned Advocate-General must, therefore, be rejected. The next contention urged by the learned Advocate-General was that in any event the assessee could not be said to hold an office or employment of profit within the meaning of section 4(3)(vi). To this contention a preliminary objection was raised on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of motion had been allowed by the High Court, the reference as it stood could not have proceeded before the High Court, for in that event the question suggested by the Commissioner would have either supplanted the question referred by the Tribunal or become an additional question required to be answered before the reference could be disposed of. The notice of motion was, however, dismissed and the reference comprising only one question, namely, that referred by the Tribunal was disposed of by the High Court by answering the question in favour of the assessee. The Commissioner thereupon appealed. There was one single appeal presumably because the order dismissing the notice of motion and disposing of the reference was one single order as finally drawn up by the High Court. When the appeal came to be heard by the Supreme Court, the attack, as appears from the judgment of the Supreme Court, was first directed against the dismissal of the notice of motion. It was contended on behalf of the Commissioner that the notice of motion was wrongly dismissed by the High Court since the question which the Commissioner wanted to raise did arise out of the order of the Tribunal and should have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion suggested by the Commissioner might be raised and answered by the High Court and the reference might be disposed of. It was only if the reference was ultimately disposed of against the Commissioner that the Commissioner could, in an appeal preferred to the Supreme Court, attack the validity of the answer given by the High Court to the question referred by the Tribunal. We cannot, therefore, accede to the contention of Mr. B.G. Thakore that the answer given by the High Court to the question referred by the Tribunal was impliedly confirmed by the Supreme Court or that it became final and immune from challenge by the Commissioner. But Mr. B.G. Thakore then contended that in any event the answer given by the High Court to the question referred by the Tribunal was binding so far as this court was concerned and it was not competent to the Commissioner to reagitate that question afresh before this court. There is in our opinion considerable force in this contention. As a matter of fact its validity flows directly from what we have said above in regard to the true position emerging from the order of the Supreme Court. The notice of motion having been allowed and the reference restored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l question was, therefore, set aside along with the answer given to it by the High Court and the High Court was competent to go into all aspects of the larger question including the aspect covered by the original question. The learned Advocate-General also relied on the words "the appeal is allowed" occurring in the last paragraph of the judgment of the Supreme Court. Now what we have said above affords a complete answer to this contention of the learned Advocate-General. What the Supreme Court did by its order was not to substitute the question specified in the order for the question originally referred by the Tribunal. Nowhere in the order do we find any direction given by the Supreme Court that the question specified by it was to be raised in substitution of the question originally referred by the Tribunal. Even from the judgment we do not find that the contention urged on behalf of the Commissioner and accepted by the Supreme Court was that the question suggested by the Commissioner should be raised in substitution of the original question. There is also nothing in the order to suggest that the Supreme Court set aside the answer given by the High Court to the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the whole of the special allowance was entitled to exemption under section 4(3)(vi) irrespective of the fact whether it was actually expended for the purpose for which it was granted or whether only such part of the special allowance as was actually spent could be exempted under the section. Mr. G.N. Joshi who appeared on behalf of the Commissioner did not even attempt to argue that the assessee did not hold an office or employment of profit and there was accordingly no occasion for the court to consider that question. We cannot, therefore, regard the decision given by the High Court of Bombay on 15th February, 1955, on the present reference binding upon us as a judicial precedent and we must proceed to consider the question on its own merits. What then is the true meaning of the expression "office or employment of profit" occurring in section 4(3)(vi) ? The learned Advocate-General contended that in the context and collocation of the words used in the section, the word "employment" took its colour from the preceding word "profit" and that the expression "office or employment of profit" meant a subsisting, permanent, substantive position, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act, 1860, made a railway company assessable to "duties payable under Schedule E in respect of all offices and employments of profit" held in or under the railway company. The question which arose for decision was whether by virtue of section 6, the assessee was liable to be assessed to tax under Schedule E in respect of the salary of Hall. The contention of the Crown was that Hall held an office or employment of profit falling within Schedule E as explained by the third rule in section 146 of the English Income Tax Act, 1842, and that the salary of Hall was, therefore, liable to be assessed in the hands of the assessee. Rowlatt J., who heard the case, was inclined to take the view that the words "office or employment of profit" as used in the English Income Tax Act, 1842, were intended to refer to an office or employment which was a subsisting, permanent, substantive position, which had an existence independent of the person who filled it, and which went on and was filled in succession by successive holders-and if this position was correct, Hall could not be said to be falling within Schedule E-but feeling himself bound by Attorney-General v. Lancashire a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot;Provided that the person quitting such office or employment, or dying within the year, or his executors or administrators, shall be liable for the arrears due before or at the time of his so quitting such office or employment, or dying, and for such further portion of time as shall then have elapsed, to be settled by the respective Commissioners, and his successor shall be repaid such sum as he shall have paid on account of such portion of the year as aforesaid." The effect of these provisions clearly was that where there was a change in the person holding the office or exercising the employment during the year of assessment, the tax was to be assessed upon the person holding the office or exercising the employment at the time the assessment was made, but an adjustment was to be subsequently made between the persons holding the office or exercising the employment during the year of assessment so that the person assessed would ultimately have to pay tax only on the salary earned by him and not on the salary earned by his predecessor or predecessors. After referring to these provisions, Lord Atkinson observed that under the scheme of the Rules the entire year of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act, 1842. It was by reason of the peculiar provisions of the English Income Tax Act, 1842, set out above that Lord Atkinson held that the words "office or employment of profit" in rule 3 referred to an office or employment which had continuity and which existed apart from the person who held it. Such provisions are absent in the Indian Income-tax Act and a decision on the construction of the words used in the English Income Tax Act, 1842, cannot, therefore, help us in arriving at a true construction of the words used in the Indian enactment. This view, we find, has also been taken by a Division Bench of the High Court of Bombay to which My Lord the Chief Justice was a party in Deorao Laxman v. Keshav Laxman [1958] 60 Bom. LR 217. There also Chainani J., as he then was, delivering the judgment of the court, held that a special meaning was given to the words "office or employment of profit'' as used in the English Income Tax Act, 1842, having regard to the language of the Act and the context in which the words occurred. This decision of the House of Lords cannot, therefore, be regarded as an authority which should compel us to construe the words " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule E to the English Income Tax Act, 1918, meant an office or employment which had some degree of permanence and continuity and which could be said to exist independently of the person who filled it. But the question again is: Does this meaning given to these words as used in Schedule E to the English Income Tax Act, 1918, apply to these words as used in section 4(3)(vi) of the Indian Income-tax Act, 1922. This case was, as we have pointed out above, a case under Schedule E to the English Income Tax Act, 1918. We have seen the rules under Schedule E to the English Income Tax Act, 1918, and we find that these rules contained the same provisions which were contained in Schedule E to section 146 of the English Income Tax Act, 1842, and which were relied upon by Lord Atkinson for taking the view set out above. There is no doubt therefore that it was in the context of these rules that the words "office or employment of profit" were construed by Lord Atkin and Lord Wright to mean an office or employment which has a subsisting, permanent, substantive position and which has an existence independent of the person who fills it. The same ground on which we declined to regard the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed to it." We do not see any reason why the words "office or employment of profit" in section 4(3)(vi) must bear any different or restricted meaning. There is nothing in the scheme of the sections of the Income-tax Act which compels us to narrow down the plain and natural meaning of the words "office or employment of profit" as used in section 4(3)(vi). The plain grammatical meaning of these words appears to be that whenever an asses-see holds any position or place or employment of profit, section 4(3)(vi) must apply. It is not necessary that such office or employment must have an independent existence apart from the assessee who fills it or that it must have any attribute of permanence so that it must continue to exist even apart from the assessee. An office or employment may be created for the first time by appointing a person to it and such office or employment would be within the meaning of section 4(3)(vi). The assessee in the present case was the selling agent of Ciba (India) Limited for a particular defined territory and it is really difficult to see how it can be said that a selling agent of a company for a particular defined territory does ..... X X X X Extracts X X X X X X X X Extracts X X X X
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