Deductibility of commission and retrospective tax amendment upheld on rational classification, accrual timing, and genuineness of payments.

Retrospective amendment excluding property taxes from "annual charge" was upheld because the classification between finally decided Supreme Court cases and other cases had a rational basis and was not discriminatory. Commission paid to carton-business employees was treated as deductible business expenditure where affidavits and business conditions showed expanded work and commercial expediency. Commission accrual was held to arise when the contracts were completed, so the amount was deductible in the relevant previous year under the mercantile system. By contrast, the book depot and ice factory commission claims failed because the Tribunal found the payments were not genuine, and those factual findings sustained the disallowances.

---

---

Issues: (i) Whether the amendment excluding property taxes from the expression "annual charge" under the Income-tax Act was unconstitutional as violating the equality clause. (ii) Whether commission paid to employees of the carton business was deductible as expenditure laid out wholly and exclusively for business purposes. (iii) Whether the commission of Rs. 23,239 was deductible in the previous year relevant to the assessment year in question. (iv) Whether the amounts disallowed as commission in the book depot and ice factory were allowable deductions.

Issue (i): Whether the amendment excluding property taxes from the expression "annual charge" under the Income-tax Act was unconstitutional as violating the equality clause.

Analysis: The retrospective amendment operated generally, but carved out an exception for cases already finally decided by the Supreme Court. That distinction was held to rest on a rational basis, namely, the legislative recognition of the finality and binding force of Supreme Court decisions. The classification between finally decided cases and other cases was treated as having a direct nexus with the object of the amendment and was not regarded as arbitrary or discriminatory.

Conclusion: The amendment was upheld and the challenge to its constitutional validity failed against the assessee.

Issue (ii): Whether commission paid to employees of the carton business was deductible as expenditure laid out wholly and exclusively for business purposes.

Analysis: The payments were supported by affidavits and the factual material showed that the business had expanded, the work had become more complex, and the employees had to shoulder increased responsibilities. The Tribunal was not justified in rejecting the unrebutted affidavits or in treating the increased remuneration as unreasonable merely because it was described as commission. A payment which is part of remuneration under the conditions of service may fall outside the restrictive allowance dealing with bonus or commission, and where it is incurred for commercial and business expediency it is deductible under the residuary business expenditure provision.

Conclusion: The carton-factory commission was held to be allowable expenditure and the answer was in favour of the assessee.

Issue (iii): Whether the commission of Rs. 23,239 was deductible in the previous year relevant to the assessment year in question.

Analysis: The right to receive the commission accrued only on completion of the contracts, and the record did not show that the relevant contracts had been completed in the earlier year. Under the mercantile system, the material question was when the liability accrued, not how the related income was spread over accounting periods. Since the contracts were completed in the year of account, the liability for the commission also arose in that year.

Conclusion: The commission was deductible in the relevant previous year and the answer was in favour of the assessee.

Issue (iv): Whether the amounts disallowed as commission in the book depot and ice factory were allowable deductions.

Analysis: In these two items, the Tribunal found on the evidence that the alleged commission payments were not genuine and were unsupported by convincing arrangements or contemporaneous adjustments. Those findings were findings of fact based on the record and could not be displaced in reference jurisdiction. Once genuineness itself failed, the claim for deduction necessarily failed.

Conclusion: The disallowances in respect of the book depot and ice factory were sustained and the answer was against the assessee.

Final Conclusion: The constitutional challenge failed, the carton-factory commission and the timing issue were decided for the assessee, but the other two commission claims were rejected on factual grounds, leaving the reference partly in favour of the assessee and partly against it.

---