1982 (12) TMI 62 - AT - Income Tax

Tribunal rules on commission income, deductions, conveyance allowance, and PPF interest

The Tribunal held that the commission income should be assessed as salary, disallowing certain expense deductions claimed by the assessee. It allowed ... Business Income Issues Involved:1. Classification of commission income as salary or business income.2. Deduction of expenses from commission income.3. Exemption of conveyance allowance under section 10(14).4. Restriction of standard deduction from salary.5. Directions regarding interest on Public Provident Fund.Detailed Analysis:1. Classification of Commission Income as Salary or Business Income:The primary issue was whether the commission received by the assessee from his employer should be assessed as salary or business income. The Income Tax Officer (ITO) considered the commission as part of the salary and disallowed the deduction of expenses claimed by the assessee. The Commissioner (Appeals) held that the commission should be assessed under the head 'Business' or 'Other sources' and allowed certain expenses as deductions.The Tribunal examined the terms and conditions of the assessee's employment and concluded that the relationship between the assessee and his employer was that of master and servant. The Tribunal noted that the assessee's duties required him to travel and contact customers, which did not change the nature of his employment. The Tribunal referred to the Supreme Court decision in Ram Prashad v. CIT, which emphasized that the nature of employment should be determined by the terms of the agreement and the degree of control exercised by the employer. Based on this, the Tribunal held that the commission income was part of the salary and should be assessed under the head 'Salary' as per section 17(1)(iv) of the Income-tax Act, 1961.2. Deduction of Expenses from Commission Income:The assessee claimed deductions for various expenses incurred in earning the commission. The Commissioner (Appeals) allowed deductions for traveling and car expenses. The Tribunal upheld this decision, stating that the commission received by the assessee represented the gross amount, and the employer did not reimburse any other expenses except for conveyance. The Tribunal held that only the net income from commission should be taxable, allowing deductions for expenses incurred wholly, necessarily, and exclusively for earning the commission.The Tribunal emphasized that the tax is on the net income and not on gross receipts, drawing support from the Privy Council's judgment in CIT v. Chitnavis and the Supreme Court's decision in Badridas Daga. Therefore, the Tribunal upheld the allowance of deductions for traveling and car expenses from the commission income.3. Exemption of Conveyance Allowance under Section 10(14):The assessee argued that the conveyance allowance of Rs. 3,600 paid by the employer should be exempt under section 10(14) as it was incurred wholly and exclusively for the performance of his duties. The Tribunal examined the letter from the employer, which stated that the amount was paid as a fixed conveyance allowance to reduce administrative work. The Tribunal concluded that the conveyance allowance was exempt under section 10(14) as it was paid to meet the expenses incurred wholly, necessarily, and exclusively for the performance of the assessee's duties as a salesman.4. Restriction of Standard Deduction from Salary:The assessee objected to the restriction of the standard deduction to Rs. 1,000 instead of Rs. 3,500. The Tribunal rejected this ground, stating that the assessee was in receipt of conveyance allowance, and therefore, the standard deduction was correctly restricted to Rs. 1,000.5. Directions Regarding Interest on Public Provident Fund:The assessee objected to the directions given by the Commissioner (Appeals) regarding the interest of Rs. 2,184 on the Public Provident Fund. The Tribunal found that the directions given by the Commissioner (Appeals) were in favor of the assessee and, therefore, dismissed this ground.Conclusion:The Tribunal partly allowed the revenue's appeal, holding that the commission income should be assessed as salary. The assessee's cross objection was also partly allowed, with the matter of additional expense deductions being remanded to the Commissioner (Appeals) for fresh consideration. The Tribunal upheld the exemption of conveyance allowance under section 10(14) and the restriction of the standard deduction from salary.