COMMISSIONER OF INCOME TAX. BOMBAY versus INDIAN ENGINEERING AND COMMERCIAL CORPN. PVT. LTD.

Citation: [1993] 3 S.C.R. 86 · Decided: 13-04-1993 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

A 
COMMISSIONER OF INCOME TAX. BOMBAY 
v. 
INDIAN ENGINEERING AND COMMERCIAL CORPN. 
PVT. LTD. 
B 
APRIL 13, I 993 
[B.P . .JEEVAN REDDY AND N. VENKA TACHALA, ,J.J.] 
.. /11"come Tax Act, 1961 :-S. 40(a) (v) 140 (A) (5)-Commission 011 
sales in addition to salary paid to Directors at a prescribed percentage 
C of sales-Held. is not "perquisite :·-cas/J payment 11mco11templated by 
tile provision. 
The respondent-assessee was a prirnte limited com pan~: trading 
in tractors and earth-mm·ing equipment. During the relernnt years, 
D the assessee pain commission on sales in addition to salaQ' to its 
directors at a prescribed percentage of the sales effected hy the 
assessee. The Income Tax Officer treated the commission on sales as 
'perquisites' and disallowed the same applying section 40 (a) (v) for 
the J'ear 1971-72 and section 40 (A) (5) for the_ assessment year 1972-
73. Which are the concerned assessment years herein. On appeal, the 
E Appellate Assistant Commissioner held that commission on sales 
cannot betreated as perquisites. The Tribunal dismissed the Revenue's 
appeal. 
The question before this court was whether commission on sales 
F (paid in cash) falls within the four corners of section 40 (a) (v) /section 
40 (A) (5). 
Dismissing the appeal, this courf. 
G 
HELD: I. Regarding Section 40 (I) (v) /40 (A) (5) as a whole, the 
cash payment of the nature concerned in this case does not fall within 
any of the situations/clauses contemplated by sub-section (5). (92-D) 
Payment of a certain cash amount by way of commission on sales, 
directly to an employee cannot be said to fall with the words "where 
H the assessee incurs any expenditure which results directly or indi-
86 
C.l.T. BOMBAY.,._ ENGG. & COMMERCIAL. CORPN. [ JEEVAN REDDY J.] 
87 
rectly" in Section 40,(A) (5). (92-F) 
Nor can such a payment fall within a provision which speaks of 
an expenditure or allowance in respect of any assets of the assessee 
used b~· the employee DE. (92-F) 
_,~ 
OVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1583 
& 1584 (NT) of 1977. 
From the Judgment and Order dated 22. 11.1976 of the Bombay 
High Court in I. T. Application No. 191 of 1976. 
S.C. Manchanda, Dr. K.P Bhatnager, C. Ramesh, T.V. Ratham 
for P. Parmeswaran for the Appellant. 
Mrs. A.K. Verma, S.V. Pathak, for J.B.D. & Co. forthe Respon-
A 
B 
c 
dent. 
D 
The judgment of the Court was delivered by 
B.P. JEEVAN REDDY, J. These appeals are preferred by the 
Revenue against an order of the Bombay High Court rejecting an E 
application under section 256 (2) of the Income Tax Act. By means of 
the said application the Revenue sought to raise the following three 
questions: 
"(1) Whether, on the fact and in the circumstances of 
the case, the Tribunal was right in holding that the 
commission paid by the assessee company to its 
directors was an additional remuneration forming part 
and parcel of the salary allowed to them and that the 
said remuneration would not be covered by section 40 
(a) (v) of the Inconie-tax Act and thereby allowing the 
assessee's claim for allowing the deduction of the 
whole amount of commission paid to the directors? 
(ii) Whether the Tribunal was right in their view that 
the words "Whether convertible into money or not" 
used in section40 (a) (v) of the Act postulated that the 
F 
G 
H 
A 
B 
c 
D 
E 
F 
G 
H 
88 
SUPREME COURT REPORTS 
(1993) 3 S.C.R. 
benefit, amenity or perquisite mentioned therein cov-
ers benefit, amenity or perquisite allowed in Kind but 
not in cash? 
(iii) Whetherthe Tribunal was right in holding l.t.1t the 
.. , 
expenditure of Rs. 19,386 for the assessment year 
1971-72 and Rs. 29,283 for the assessment year 1972-
73 qid not represent entertainment expenditure within 
the meaning of section 37 (ii) of the Income-tax Act?" 
The assessment years concerned here in are 1971-72 and 1972-
73. The first two questions go together. The provision applicable for 
the A.Y.1971-72 was Section40 (;1 l (v) whereas forthe AY.1972-73. 
the provision applicable is Section 40 (a) (5) which is a successor 
provision to Section 40 (a) (v). 
The respondent is a private limited company trading in tractors 
and earth moving equipment. During the accounting years relevant to 
the aforesaid assessment years. the assessce paid to three of its 
Directors commission ~n sales in addition to salary as follows: 
Assessment 
Director 
Salary 
Commission 
year 
1971-72 
Sh.S.B Lal 
39,000 
36, l 71 
Sh. S.B. Mathur 
18,000 
36, l 71 
Sh. 

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