Contractual commission may form part of salary for provident fund deduction when it is remuneration linked to turnover.

Commission paid to salesmen under the contract of employment can form part of "salary" for purposes of the Fourth Schedule where it represents remuneration fixed by reference to turnover rather than a mere allowance. On that basis, employer and employee provident fund contributions computed with reference to such commission remain within the recognised provident fund rules, and the employer's contribution attributable to it is deductible. The prior recognition of the fund also supports continued compliance with the Fourth Schedule until recognition is validly withdrawn in accordance with law.

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Issues: Whether commission paid to salesmen under the terms of employment forms part of "salary" for the purpose of employer's deduction for contribution to a recognised provident fund, and whether the provident fund continued to satisfy the conditions for recognition and deduction under the Fourth Schedule.

Analysis: The definition of "salary" in rule 2(h) of Part A of the Fourth Schedule to the Income-tax Act, 1961 is inclusive in form and does not expressly exclude commission. The expression is to be understood in its ordinary and legal sense as remuneration for services rendered, and where payment is fixed by reference to a percentage of turnover under the contract of employment, the commission is only the measure of the salary. The Court distinguished commission that is merely an allowance from commission that constitutes contractual remuneration. On that basis, commission paid to the salesmen in the present case formed part of salary. Since employee and employer contributions to a recognised provident fund are computed with reference to salary, the fund satisfied rule 4(c) of Part A of the Fourth Schedule. The prior recognition granted by the Commissioner also supported the position that the fund continued to meet the required conditions until withdrawn in accordance with law.

Conclusion: The commission was includible in salary, the employer's contributions attributable to it were deductible under section 36(1)(iv), and the provident fund satisfied rule 4(c). The findings were in favour of the assessee.

Ratio Decidendi: For a recognised provident fund under the Income-tax Act, remuneration paid to an employee under the contract of employment at a fixed percentage of turnover may constitute salary, and employer contributions calculated on that basis are deductible unless the fund's recognition is validly withdrawn.

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