Court rules in favor of company on perquisites calculation, criticizes rejection of representation. Order quashed.

The court held that the company's contribution to perquisites should be calculated based on salary plus commission, citing the Gestetner Duplicators Pvt. Ltd. v. CIT case. The rejection of the petitioner's representation by the respondents was deemed unjustified as it contravened established law. The court found the impugned order to be arbitrary and in violation of natural justice. Consequently, the court allowed the writ petition, quashed the order, and directed the respondents to consider the company's contribution in line with the court's ruling.

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Issues Involved:
1. Whether the company's contribution to perquisites such as provident fund, gratuity, and superannuation benefits should be calculated based on salary plus commission.
2. Whether the rejection of the petitioner's representation by the respondents was justified.
3. Whether the impugned order was arbitrary and violated principles of natural justice.

Issue-wise Detailed Analysis:

1. Calculation of Perquisites Based on Salary Plus Commission:
The primary issue was whether the company's contribution to perquisites such as provident fund, gratuity, and superannuation benefits should include commission along with salary. The petitioner argued that petitioner No. 2, who was drawing a salary of Rs. 6,000 per month, should continue to receive these benefits on the said salary, including commission. The respondents contended that these benefits are relatable only to the salary and not to the salary plus commission.

The court referred to the Supreme Court judgment in Gestetner Duplicators Pvt. Ltd. v. CIT [1979] 117 ITR 1, which clarified that "the entire remuneration determined partly by reference to time and partly by reference to the volume of work done, partook of the character of salary." Thus, the commission paid by the company to its salesmen clearly fell within the expression 'salary' as defined in rule 2(h) of Part A of Schedule IV to the Income-tax Act, 1961. The court held that the company's contribution to perquisites must relate to salary plus commission, particularly given the ceiling on commission of Rs. 12,000 per annum.

2. Justification of Respondents' Rejection:
The respondents rejected the petitioner's request for inclusion of commission for the purposes of calculating provident fund, gratuity, and superannuation benefits. The court noted that the respondents' guidelines themselves fixed the company's contribution towards provident fund as not exceeding 10% of the salary as laid down under the Income-tax Rules. The guidelines also allowed for a commission on net profits up to 1% of the net profits in addition to the salary, subject to an overall ceiling that salary plus commission would not exceed Rs. 72,000 per annum.

The court found no merit in the respondents' contention that salary should be determined by excluding commission in terms of the Provident Funds Act. The law was well settled by the Supreme Court, and the respondents' rejection was not justified.

3. Arbitrariness and Violation of Natural Justice:
The court observed that the impugned order dated December 28, 1981, lacked any reasoning and merely stated that "there is no scope for any relaxation" in light of the facts and circumstances of the case and the current policy of the Government. The court referred to the Division Bench judgment of the Gujarat High Court in Cibatul Ltd. v. Union of India [1980] 50 Comp Cas 437, which emphasized that an order in a quasi-judicial matter must state the reasoning behind the decision to rule out arbitrariness.

The court held that the impugned order was arbitrary and violated principles of natural justice, as it did not provide any reasons for rejecting the petitioner's representation.

Conclusion:
The court allowed the writ petition, quashed the impugned order dated December 28, 1981, and issued a writ of mandamus directing the respondents to treat the petitioner-company's contribution to provident fund, gratuity, and superannuation benefits as relatable to salary plus commission, subject to a ceiling on commission of Rs. 12,000 per annum inclusive of bonus. There was no order as to costs.

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