1975 (11) TMI 30 - HC - Income Tax

Commission as Earned Income: Court Rules in Favor of Assessee

The court ruled in favor of the assessee, determining that the commission received from managing agents should be considered earned income under section ... Earned Income, Managing Agent Issues:Interpretation of the term 'earned income' under section 2(6AA)(c) of the Indian Income-tax Act, 1922 in the context of a commission received by the assessee from managing agents.Analysis:The judgment revolves around the interpretation of the term 'earned income' under section 2(6AA)(c) of the Indian Income-tax Act, 1922. The case involved an agreement where the father of the assessee rendered assistance in the promotion of a cement company and received a share of the managing agent's commission. This commission was later assigned to the assessee. The Income-tax Officer treated the received amount as the assessee's income but denied it as earned income, leading to a series of appeals. The Appellate Assistant Commissioner and Tribunal differed in their views, with the Tribunal ultimately considering the disputed amount as earned income. The consolidated question referred to the court was whether the commission received should be treated as earned income.The court analyzed the definition of 'earned income' under section 2(6AA)(c) which includes income immediately derived from personal exertion or representing an allowance for past services. The revenue contended that the term 'other allowances' should be construed ejusdem generis, limited to allowances akin to pension or superannuation. However, the court rejected this narrow interpretation, emphasizing that the term encompasses any periodical payment made to an assessee for past services, not limited to pension or superannuation allowances. Given that the commission was for past services rendered by the father of the assessee, it fell within the purview of section 2(6AA)(c) as earned income.The court noted that although section 2(6AA)(c) applied to the assessment year 1959-60, similar provisions in subsequent Finance Acts validated the treatment of the income as earned for the relevant assessment years. Consequently, the court ruled in favor of the assessee, affirming that the commission received should be considered earned income. The court also awarded costs to the assessee, including counsel fees.