Case: Gestetner Duplicators Private Limited Vs. Commissioner of Income Tax, West Bengal

36(1) (iv) of the Act.Turning to the Circular dated January 16, 1941 issued by the Central Board of Revenue on which counsel for the Revenue has relied, it cannot, in our view, affect the question of deductibility, for, if the commission paid by the assessee to its salesmen is covered by the expression salary on its true construction, which, according to us, it does, the Boards view or instructions cannot detract from the legal position arising on such proper construction. In any case we are of the view that by the said Circular what the Board wants to keep out of the term salary are payments by way of commission which do not partake of the character of salary. Similarly the decision of this Court in M/s. Bridge &Roof Co.s case (supra) on which the High Court has relied cannot avail the Revenue. In the first place it was a case under the Provident Fund Act, 1952 where this Court was required to construe the expression basic wages as defined in s. 2(b) of that Act and to decide whether production bonus was included in that expression and it was in that context that this Court made observations to the effect that the said expression as defined therein did not include any bonus, commission or other similar allowances. Secondly, as against the definition of basic wages in s. 2(b) (ii) which excluded any dearness allowance, house rent allowance, over-time allowance, bonus, commission or any other similar allowance, s. 6, of the Act provided for inclusion of dearness allowance for the purposes of contribution and, therefore, this Court was concerned with trying to discover some basis for the exclusion in cl. (ii) of s. 2(b) as also for the inclusion of dearness allowance and retaining allow ance (if any) in s. 6 of that Act and the Court found that the basis for inclusion in s. 6 and exclusion in cl. (ii) of s. 2(b) was that whatever was payable in all concerns and was earned by all permanent employees was included for the purpose of contribution under s. 6 but whatever was not payable by all concerns and was not earned by all employees of a concern was excluded for the purposes of contribution and that is why commission or similar allowances were excluded from the definition of basic wages, for commission and allowances were not necessarily to be found in all concerns nor were they necessarily earned by all the employees of the same concern. It is, therefore, clear that the ratio of the decision and th e observations made by this Court in a different context in that case would be inapplicable to the facts of the present case.Having regard to the above discussion it is clear that the High Courts view on the first question is clearly unsustainable and that question must be answered in favour of the assessee and against the Revenue. 7. Dealing next with the second question it seems to us clear that having regard to our view on the proper construction of the expression salary occurring in Rule 2(h) of Part A of the Fourth Schedule to the Act it must be held that the Tribunal was right in holding that the Provident Fund maintained by the assessee satisfied the condition laid down in Rule 4(c) of Part A of the Fourth Schedule and that question also must be answered in favour of the assessee and against the Revenue However, we would like to make some observations with regard to the true impact of the recognition granted by the Commissioner of Income-Tax to a Provident Fund maintained by an assessee. The facts in the present case that need be stressed in this behalf are that it was as far back as 1937 that the Commissioner of Income-tax had granted recognition to the Provident Fund maintained by the assessee under the relevant rules under 1922 Act, that such recognition had been granted after the true nature of the commission payable by the assessee to its salesmen under their contracts of employment had been brought to t he notice of the Commissioner and that said recognition had continued to remain in operation during the relevant assessment years in question; the last fact in particular clearly implied that the Provident Fund of the assessee did satisfy all the conditions laid down in Rule 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation we do not think that it was open to the taxing authorities to question the recognition in any of the relevant years on t he ground that the assessees Provident Fund did not satisfy any particular condition mentioned in Rule 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the Provident Fund satisfies all the conditions under Rule 4 of Part A of the Fourth Schedule to the Act and not sit in judgment over it. There is ample power conferred upon the Commissioner under Rule 3 of Part A of the Fourth Schedule to withdraw at any time the recognition already granted if, in his opinion, the Provident Fund contravenes any of the condition s required to be satisfied for its recognition and if during assessment proceedings for any particular assessment year the taxing authority finds that the Provident Fund maintained by an assessee has contravened any of the conditions of recognition he may refer the question of withdrawal of recognition to the Commissioner but until the Commissioner acting under the powers reserved to him withdraws such recognition the taxing authority must proceed on the basis that the Provident Fun d has satisfied all the requisite conditions for its recognition for that year; any other course is bound to result in chaos and uncertainty which has to be avoided. 8.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It will thus appear clear that conceptually there is no difference between salary and wages both being a recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type while the latter is used in connection with manual services. It is further common knowledge that this compensation to the labourer or artisan could be a specified sum for a given time of service or a fixed sum for a specified work i.e. payment made by the job, the commonest example of the latter category being a piece-rated worker. In other words, the expression wages does not imply that the compensation is to be determined solely upon the basis of time spent in service; it may be determined by the work done; it could be estimated in either way. If conceptually salary and wages mea n one and the same thing then salary could take the form of payment by reference to the time factor or by the job done. In fact, in the case of salary the recompense could be determined wholly on the basis of time spent on service or wholly by the work done or partly by the time spent in service and partly by the work done. In other words, whatever be the basis on which such recompense is determined it would all be salary.Having reached the above conclusion, we have to consider the nature of recompense that is being made by the assessee to its salesmen, whether the whole of it partakes of the character of salary or not? The definition of salary in Rule 2(h) includes dearness allowance if the terms of employment so provide and excludes all other allowances and perquisites. It does not in terms exclude commission as such and, in our view rightly, for, though ordinarily according to the Shorter Oxford English Dictionary commission means a pro rata remuneration for work done as agent, in business practice commission covers various kinds of payments made under different circumstances.It is thus clear that if under the terms of the contract of employment remuneration or recompense for the services rendered by the employee is determined at a fixed percentage of turnover achieved by him then such remuneration or recompense will partake of the character of salary, the percentage basis being the measure of the salary and therefore such remuneration or recompense must fall within the expression salary as defined in Rule 2(h) of Part A of the Fourth Schedule to the Act. In the instant case before us, admittedly, under their contracts of employment the assessee has been paying and did pay during the previous years relevant to the three assessment years to its salesmen, in addition to the fixed monthly salary, commission at a fixed percentage of the turnover achieved by each salesman, the rate of percentage varying according to the class of article sold and the category to which each salesman belonged. The instant case is therefore, an instance where the remuneration so recompense payable for the services rendered by the salesmen is determined partly by reference to the time spent in the service and partly by reference to the volume of work done. But it is clear that the entire remuneration so determined on both the basis clearly partake s of the character of salary. In our view, therefore, the commission paid by the assessee to its salesmen would clearly fall within the expression salary as defined in Rule 2(h) of Part A of the Fourth Schedule to the Act and as such the three sums of Rs. 95, 421/-, Rs. 1, 00, 564/- and Rs. 1, 17, 969/- representing proportionate contributions appertaining to the commission paid by the assessee to its salesmen would be deductible under s. 36(1) (iv) of the Act.Turning to the Circular dated January 16, 1941 issued by the Central Board of Revenue on which counsel for the Revenue has relied, it cannot, in our view, affect the question of deductibility, for, if the commission paid by the assessee to its salesmen is covered by the expression salary on its true construction, which, according to us, it does, the Boards view or instructions cannot detract from the legal position arising on such proper construction. In any case we are of the view that by the said Circular what the Board wants to keep out of the term salary are payments by way of commission which do not partake of the character of salary. Similarly the decision of this Court in M/s. Bridge &Roof Co.s case (supra) on which the High Court has relied cannot avail the Revenue. In the first place it was a case under the Provident Fund Act, 1952 where this Court was required to construe the expression basic wages as defined in s. 2(b) of that Act and to decide whether  production bonus was included in that expression and it was in that context that this Court made observations to the effect that the said expression as defined therein did not include any bonus, commission or other similar allowances. Secondly, as against the definition of basic wages in s. 2(b) (ii) which excluded any dearness allowance, house rent allowance, over-time allowance, bonus, commission or any other similar allowance, s. 6, of the Act provided for inclusion of dearness allowance for the purposes of contribution and, therefore, this Court was concerned with trying to discover some basis for the exclusion in cl. (ii) of s. 2(b) as also for the inclusion of dearness allowance and retaining allow ance (if any) in s. 6 of that Act and the Court found that the basis for inclusion in s. 6 and exclusion in cl. (ii) of s. 2(b) was that whatever was payable in all concerns and was earned by all permanent employees was included for the purpose of contribution under s. 6 but whatever was not payable by all concerns and was not earned by all employees of a concern was excluded for the purposes of contribution and that is why commission or similar allowances were excluded from the definition of basic wages, for commission and allowances were not necessarily to be found in all concerns nor were they necessarily earned by all the employees of the same concern. It is, therefore, clear that the ratio of the decision and th e observations made by this Court in a different context in that case would be inapplicable to the facts of the present case.Having regard to the above discussion it is clear that the High Courts view on the first question is clearly unsustainable and that question must be answered in favour of the assessee and against the RevenueDealing next with the second question it seems to us clear that having regard to our view on the proper construction of the expression salary occurring in Rule 2(h) of Part A of the Fourth Schedule to the Act it must be held that the Tribunal was right in holding that the Provident Fund maintained by the assessee satisfied the condition laid down in Rule 4(c) of Part A of the Fourth Schedule and that question also must be answered in favour of the assessee and against the Revenue However, we would like to make some observations with regard to the true impact of the recognition granted by the Commissioner of Income-Tax to a Provident Fund maintained by an assessee. The facts in the present case that need be stressed in this behalf are that it was as far back as 1937 that the Commissioner of Income-tax had granted recognition to the Provident Fund maintained by the assessee under the relevant rules under 1922 Act, that such recognition had been granted after the true nature of the commission payable by the assessee to its salesmen under their contracts of employment had been brought to t he notice of the Commissioner and that said recognition had continued to remain in operation during the relevant assessment years in question; the last fact in particular clearly implied that the Provident Fund of the assessee did satisfy all the conditions laid down in Rule 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation we do not think that it was open to the taxing authorities to question the recognition in any of the relevant years on t he ground that the assessees Provident Fund did not satisfy any particular condition mentioned in Rule 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the Provident Fund satisfies all the conditions under Rule 4 of Part A of the Fourth Schedule to the Act and not sit in judgment over it. There is ample power conferred upon the Commissioner under Rule 3 of Part A of the Fourth Schedule to withdraw at any time the recognition already granted if, in his opinion, the Provident Fund contravenes any of the condition s required to be satisfied for its recognition and if during assessment proceedings for any particular assessment year the taxing authority finds that the Provident Fund maintained by an assessee has contravened any of the conditions of recognition he may refer the question of withdrawal of recognition to the Commissioner but until the Commissioner acting under the powers reserved to him withdraws such recognition the taxing authority must proceed on the basis that the Provident Fun d has satisfied all the requisite conditions for its recognition for that year; any other course is bound to result in chaos and uncertainty which has to be avoided.