TMI Blog1982 (12) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... salary certificate from his employer Voltas Ltd., regarding the salary paid to him which showed that the assessee was in receipt of commission amounting to Rs. 61,605 in addition to the salary and that tax had been deducted at source from this amount by the employer. The assessee had claimed expenses amounting to Rs. 14,730 from the said commission and declared a sum of Rs. 46,875 as the net commission received by him. 3. The ITO held that in view of the fact that the assessee was getting salary and commission from the same employer and tax had been deducted at source by the employer from the said receipts, the commission was to be considered as income taxable under the head 'salary' and that, therefore, the assessee was not eligible for deduction of expenses amounting to Rs. 14,730 claimed by him. Accordingly, he rejected the assessee's claim for deduction of expenses. The ITO determined the total income of the appellant at Rs. 1,15,000. 4. The matter went before the Commissioner (Appeals). Elaborate arguments were addressed before him about the head of income under which the commission receipts were chargeable in the hands of the assessee. After examining the materials placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as partly allowed. Both the revenue and the assessee felt aggrieved by the order of the Commissioner (Appeals) and hence, the present appeal by the revenue and the gross objection by the assessee. 5. Shri Makhija, the learned departmental representative, took us through the relevant documents starting from the appointment of the assessee on 5-1-1950 as a salesman in the engineering department of Volkart Brothers and ending with the terms and conditions of commission payable to the assessee as embodied in the letter dated 21-6-1975 written by the assessee's present employer Voltas Ltd., to the assessee. The learned departmental representative laid stress on the letter written by Voltas Ltd. on 21-6-1955, which shows that the commission payable to the assessee was also deemed to be part and parcel of the assessee's current terms of the service with Voltas Ltd. with retrospective effect from 1-9-1954. He then referred to the letter dated 18-4-1980 written by Voltas Ltd. to the assessee regarding the reimbursement of conveyance expenses by paying him the conveyance allowance of Rs. 3,600. The departmental representative relied on para 3 of this letter to show that the assessee was on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entrusted to him in the manner directed by the employer, viz., Voltas Ltd. He, therefore, argued that the Commissioner (Appeals) was not justified in treating the commission income as not forming part of the assessee's salary but was assessable under the head 'Business' or 'Other sources'. The learned departmental representative further submitted that Ground No. 2 relating to the allowance as deduction amounting to Rs. 10,394 was only consequential to Ground No. 1. 6. Shri Trivedi, the learned counsel for the assessee, put forward three propositions in support of the assessee's case. Firstly, he contended that the assessee had two separate agreements with Voltas Ltd., the first one was between the assessee and Voltas Ltd., as an employee and employer under which the assessee was getting salary. The other agreement was between the assessee and Voltas Ltd., as an independent contractor for which the assessee received commission from Voltas Ltd. The second proposition of Mr. Trivedi though alternatively is that even if the commission is held to be assessable under the head 'Salary' for the purpose of arriving at the real income of salary received by the assessee, expenses incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 97. On the basis of this decision, the learned counsel argued that the assessee's position was that of selling agent and that the agency could be terminated by Voltas Ltd. at any time. 10. Shri Trivedi then relied on the language of section 14 of the Act and also on the discussion at pages 89 and 352 of the book Law of Income-tax by Kanga Palkhivala, 7th Edition, Vol. 1, to contend that the tax was on the net income and not on gross receipts. In other words, the tax was on the real income. He argued that the theory of real income was not confined to business alone but was applicable to other types of income also including income from salary. In support of this plea, the learned counsel relied on the decision of the Supreme Court in the case of CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144 and the Madras High Court in the case of CIT v. Motor Credit Co. (P.) Ltd. [1981] 127 ITR 572. 11. On the third proposition put forward by him, the learned counsel relied on section 10(14) and contended that the amount of Rs. 3,600 paid to the assessee was exempt from tax if it is held that the commission income was liable to charge under the head 'Salary'. 12. In reply to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-10-1954 written by Voltas Ltd., to the assessee. This letter further states that the assessee would be credited with his service prior to 31-8-1954 with Volkart Brothers to the extent it was admissible with them for the purpose of Provident Fund, Gratuity, Leave and other benefits. Voltas Ltd. states that they have undertaken the responsibility for payments that may become due to the assessee in respect of those benefits in case of cessation of his employment with Voltas Ltd. in future. They attached a staff sheet which was handed over to them by Volkart Brothers indicating the details regarding the assessee's service with them and requested the assessee to sign and return the duplicate of that letter in token of his agreement and acceptance of the agreement by 9-10-1954. It was explained before us that the staff sheet represented the service book of the assessee. There is no dispute that the assessee signed his acceptance as required in this letter. 16. Voltas Ltd. wrote on 21-6-1955 to the assessee Volkart Brothers had drawn their attention to the fact that in addition to the emoluments mentioned under item 3(B) of the staff sheet the assessee was also entitled to commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission may have to be shared, the final decision resting with the Management. 5. We reserve the right to alter the above terms and conditions and the equipment on which the same is payable at any time without giving notice and without assigning any reasons. 6. Where commission is payable on percentage basis, it will be calculated on the net invoice value of goods sold after deduction of all discounts, railway freight, sales tax etc. 7. This arrangement replaces all the previous practices expressed or implied. In case of any doubts regarding the quantum of rate of commission or the products on which the same is payable, Management's decision will be final." There is no dispute that the assessee has been working with Voltas Ltd. on the above terms and conditions in respect of his salary and commission received from them. 19. We would refer to one more letter dated 18-4-1980 written by Voltas Ltd. to the assessee. This letter shows that the assessee had agreed to use his personal car for travelling in the course of his official duties. Therefore, the company reimbursed an amount of Rs. 3,600 during the period 1-4-1976 to 31-3-1977. In para 3 of this letter, it is stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities described in his daily routine and also the written submissions filed before the Commissioner (Appeals). Unfortunately, the Commissioner has assumed that the assessee was carrying on a business, that he was conducting his business from his house and on that basis, has proceeded to decide the issue without proper and correct appreciation of the nature of duties entrusted to the assessee by his employer and the nature and method of the work to be done by him. The revised terms of commission contained in paras 4 to 7 clearly establish that the assessee is only an employee and that he is to conduct his work according to the directions and under the control of the management only. The above clauses establish beyond doubt that the management had the final say in regard to the commission payable to the assessee and that the management can unilaterally reduce the rate of commission and decide all matters as described in paras 4 to 7 which was binding on the assessee. These clauses militate against the theory put forward on behalf of the assessee that he is an independent contractor or a selling agent carrying on an agency business on commission on behalf of Voltas Ltd. This is furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and the nature of the duties of the employee will require to be considered in each case in order to arrive at a conclusion as to whether the person employed is a servant or an agent. In each case the principle for ascertainment remains the same." That was a case of a managing director and the point for consideration before the Supreme Court was whether the remuneration paid to him as a percentage of gross profits in addition to monthly remuneration was taxable as salary or business income. A page 127 of the report, the Supreme Court held that whether or not a managing director is a servant of the company, apart from his being a director can only be determined by articles of association and terms of the employment. After discussing in detail the various authorities cited before them. Their Lordships of the Supreme Court held as follows : "A detailed consideration of all the cases cited and the passages from text books referred to before us do not assist us in coming to the conclusion that the test for determining whether the person employed by a company is a servant or agent is solely dependent on the extent of supervision and control exercised on him. The real questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Here the argument of the revenue is that no further deduction apart from those specified in section 16 is admissible while the learned counsel for the assessee put forward the proposition that for arriving at the real income of the assessee from his salary, the expenses incurred by the assessee for the purpose of earning such salary should also be deducted. In support of this plea, reliance was placed by the learned counsel on the decisions in the cases of Shoorji Vallabhdas Co. and Motor Credit Co. (P.) Ltd. In our opinion these two decisions relied on by the learned counsel are of no assistance since the facts of the said cases were entirely different and the question considered in them was whether any income accrued to the assessee or was received by the assessee. In the present case, there is no dispute that the assessee has received the amount of commission of Rs. 61,605 from its employer. The only question is whether the assessee is entitled to any deduction of expenses claimed by him from this receipt of commission. 24. However, it cannot be disputed that the amount of Rs. 61,605 received by the assessee from his employer represents the gross amount of commission an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us that the assessee had incurred the expenses amounting to Rs. 14,730 claimed by him in the course of his employment and that he was required to spend out of his remuneration the said amount wholly, necessarily and exclusively for the purpose of his duties as a salesman. We, therefore, hold that in computing the income of the assessee from his commission receipts, only the net income of the assessee from his commission earnings would form part of his salary and would be taxable in his hands under section 15 and not the gross amount of commission receipts namely Rs. 61,605. The deduction in the present case is allowable under section 15 under which only the net salary income is chargeable to income-tax and not the gross salary income. This is on the basis of the analogy that only the net income, profits and gains of a business or a profession is chargeable to tax under section 28 of the Act. We would, therefore, hold that the Commissioner (Appeals) was justified in allowing the two deductions of Rs. 4,500 on account of travelling expenses and Rs. 5,894 on account of car expenses from out of salary income of the assessee. Accordingly, Ground No. 2 in the revenue's appeal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursement of expenses on conveyance, it actually establishes that an amount of Rs. 300 per month was paid to the assessee as conveyance allowance. The letter only explains the reasons and the basis for fixing this conveyance allowance paid to the assessee. It does not mean that what the assessee received was not conveyance allowance but by way of reimbursement of actual expenses incurred by the assessee. If what the assessee's claim is correct then the assessee would be entitled to the reimbursement of entire amount of expenses claimed by him on the maintenance of his car amounting to Rs. 7,367. The fact that the company decided to pay him a fixed amount of Rs. 300 per month shows that it was only by way of a conveyance allowance and not by way of reimbursement of the actual expenses incurred by the assessee. This conveyance allowance of Rs. 300 per month is paid to the assessee irrespective of the expenditure incurred by him on conveyance. We are, therefore, unable to agree with the learned counsel for the assessee that the amount of Rs. 3,600 was by way of reimbursement of conveyance expenses by the employer to the assessee. 29. However, we find considerable force in the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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