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TMI Blog1965 (11) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... s exempt in the hands of the assessee by virtue of the Notification No. 878F dated March 21, 1922, as amended by Notification No. 8 dated March 24, 1928 ?" The facts that led up to the reference may be briefly stated : One S. P. Gallini was doing business in art-silk in the name and style of " Rayon Yarns Import Company ". Under an agreement dated May 30, 1948, he appointed E. Francescanto, the respondent, as his manager. For the assessment year 1949-50 Gallini claimed a deduction of Rs. 2,45,557, the commission paid by him to the respondent in terms of the agreement, from his taxable income. But the Income-tax Officer rejected the claim on the ground that " the payment of commission is but a way to reduce his income and his tax liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption. Mr. A. V. Viswanatha Sastri, learned counsel for the assessee, argued that, as the employer had been assessed on the same income as was now assessed in the hands of the employee presumably on the ground that the division of profits was sham and that the said income continued to be the income of the employer, the revenue could not assess the said income to tax once again as the income of the assessee, as in fact it never became his income. He further contended that in any event the assessee was entitled to the exemption under the notification as the conditions laid down therein were fully complied with. At the outset we may point out that the first argument advanced by Mr. A. V. Viswanatha Sastri is not available to him. The e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and charged under the head ' business ' ". Under this notification commission received by an assessee is exempt from tax if the following three conditions are satisfied: (i) the said sum has been paid out of or determined with reference to the profits of such business; (ii) the said amount has not been allowed as a deduction but has been included in the profits of the business; and (iii) income-tax has been assessed and charged on the said profits including the said income under the head " business ". The three conditions are cumulative and unless all the three conditions are satisfied no exemption can be given. The object of the notification is self-evident : it is to prevent imposition of tax on the same income twice over. In the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyer) are the forward contracts made by him on the strength of his business contacts with foreign contractors. The benefits of these contracts he transferred to local merchants at a profit of 2 to 5%. This kind of business hardly required any investment of capital. The incomings of the employer's business were nothing but the profits earned by him in the sale transactions. It is out of this amount that was coming into his hands that he agreed to pay half per cent. on sales effected by him to the assessee. If there was no sale, the assessee earned no commission. If there was a sale it only brought resulting profits to the hands of the employer. That being the factual position, there cannot be any doubt that, on the agreement between the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stification to disturb the same. If so, it follows that the said commission was in fact paid out of the profits of the employer's business. The second condition was also fulfilled in this case, for, though the employer claimed the commission paid to the assessee as a deduction, the Income-tax Officer included that amount in the profits of the business and assessed that income to tax. Therefore, the said sum had not been allowed as a deduction to the employer. In this view, as all the three conditions laid down by the notification had been complied with, the assessee was entitled to exemption from tax in respect of the said commission. We shall now notice briefly the decisions cited at the Bar. In M. K. Kirtikar v. Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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