Provident fund deduction turns on statutory salary, and variable sales commission cannot be treated as deductible contribution.

Commission paid to salesmen was held not to form part of statutory salary for recognised provident fund purposes because the amount varied with sales, was contingent on business performance, and was not a fixed monthly payment. The court construed the Income-tax Act and the provident fund rules harmoniously and held that an employer's contribution is deductible under section 36(1)(iv) only to the extent it relates to salary within the statutory definition. Internal scheme wording could not enlarge that meaning. The employer's contribution attributable to commission was therefore not allowable, and the reference was answered against the assessee.

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Issues: Whether commission paid to salesmen could be treated as part of their salary for the purpose of employer's contribution to a recognised provident fund and deduction under section 36(1)(iv) of the Income-tax Act, 1961, and whether such contribution satisfied rule 4(c) of Part A of the Fourth Schedule to the Act.

Analysis: The employer's provident fund scheme described salary as fixed monthly salary together with commission, but the statutory scheme treated salary as the basis for both employee and employer contributions. Rule 2(h) of Part A of the Fourth Schedule excluded all allowances and perquisites other than dearness allowance, and the earlier Board circular stated that commission is not salary unless it is fixed, periodic, and not contingent. The commission paid here varied according to sales and categories of employees, was not a fixed monthly payment, and depended on contingencies of business performance. The expressions in the company's internal scheme could not enlarge the statutory meaning of salary for recognition of the fund or for deduction. The provisions governing recognised provident funds and the statutory treatment of salary were construed harmoniously, and commission was held outside that scope.

Conclusion: Commission could not be included in salary for section 36(1)(iv), and the employer's contribution attributable to commission was not an allowable deduction. The answer to the referred questions was against the assessee and in favour of the Revenue.

Ratio Decidendi: For a recognised provident fund, employer contribution is deductible only to the extent it is referable to statutory salary, and contingent or variable commission not falling within the statutory concept of salary cannot be treated as deductible provident fund contribution.

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