GESTETNER DUPLICATORS (PVT.) LTD. versus COMMISSIONER OF INCOME-TAX, WEST BENGAL

Citation: [1979] 2 S.C.R. 788 · Decided: 14-12-1978 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

788 
A 
GESTETNER DUPLICATORS (PVT.) LTD. 
v. 
COMMISSIONER OF INCOME-TAX, WEST BENGAL 
December 14, 1978 
B 
[P. N. BIIAGWATI, V. D. 'TuLZAPURKAR AND R. S. PATHAK, JJ.] 
Income-tax Act, '1961-s. 17(1) (iv) and r. 
2(h) of Part A 
of Fourth 
• 
Schedule-Sco~e of. 
,,... 
Salesmen entitled to t:ommission in <uldition to salary-Assessee credited into 
the provident fund accounts of sales1nen its share of PF contribution calculated 
011 both salary and commission-Assess.ee's <:ontribution of PF on conunission, 
• 
C 
if could be claimed as an allowable deduction under s. 36(1) (iv). 
D 
E 
F 
G 
u 
Words and phrases: Salary-Mif!aning of--..'ialary, if includes con1mission. 
The expression "salary," under s. 17(1)(iv) of the Income Tax Act, 1961, 
includes "any fees, comm.i.SBions, p~rquisit.es or profits in lieu of or in addition 
to any salary or wages"; under r. 2(h) in Part-A of the Fourth Schedule to the 
Act, which contains Rules relating to recognised Provident Funds, the term 
'salary' includes dearness allowance, if the terms of employment so provide, 
but excludes ali other allowances and perquisites, where an MBCSsee, as an 
employer, has paid any sum by way of oontribution towards a recognised pro-
vident fund, s. 36(1)(iv) allows such sum as a deduction in computing the 
income subject to such limits as may be prescribed for the purpose of recognis-
in& the provident fund. The term "contribution' is defined in r. 2(c), of part 
A o! the Fourth Schedule as any sum credited by or on behalf of any employee 
out of .hjs salary or by an employer out of his own moneys to the individual 
account of an employee but does not include any sum credited as interest. 
The assessee maintained a provident fund which was recognised 
by 
the 
Commissioner of Income-tax in 1937. 
Under r. 2 of the Provident Fund 
Scheme Rules "salary" =ant not only fixed monthly salary but also commis-
sion and dearness allowance as might be paid by the company to its employees. 
As a term of the contract of employment, in addition to monthly saJ_ary, 
the assessee paid to each of the salesmen commission at a fixed percentage of 
turnov1:r achieved by them. 
The assessec's share of the contribution to the 
provident fund Wa5 calculated on the basis of both salary as well as the com-
mission paid to each of the salesmen. 
In respect of assessment years 1962-63, 1963-64 and 1964-65 the 
assessee 
claimed the whole amount paid by it towards provident fund contributions, as 
a deduction allowable under s. 36(1)(iv) of the Income-tax Act and for this 
purpose it relied on r. 2 of its Provident Fund Scheme Rules. 
Out of the total Provident Fund contributions clain1ed as allowable deduc-
tion under s. 36( 1) (iv) the Income-tax Officer disallo\ved that part of the 
assessee's contribution which re-lated to the amounts calculated on the basis 
of commission paid to the salesmen on the ground rhat under r. 2(h) of Pnrt 
A of the Fourth Schedule the expression "salaryio did not include 
1:ommission 
paid to the employees. 
• 
• 
; 
I
.. 
GESTETNER DUPLICATORS V. C.J.T. 
789 
'The assessee's appeal in respect of the assessment year 1962-63 was rejected 
by an Appellate Assistant Commission.er; but iu respect of tbe otber two 
assessment years another Appellate Assistant Commissioner allowed its appeals. 
On furtber appeols botb by tbe assessee and tbe Department the Appellat<> 
Tribunal held that tbe commission paid being a part of tbe contractual obliga· 
tion, it was aJiart of the salary paid to the employees and therefore contribu-
tions made towards provident fund on the commission were a1lowable as a 
deduction under s. 36(l)(iv) of tbe Act, and secondly since tbe provident fund 
was a recogni>ed fund which fulfilled tbe conditions laid down in r. 4(c) of 
Part A of the Fourth Schedule, the employer's contributions were entitled to 
be deducted. 
The High Court answered the reference in favour of the Department. It 
held that since commission, unlike salary, was not a fixed monthly payment it 
B 
---rould not be included within the meaning of "salary" and that the meaning of 
C 
the term "salary" could not be extended by the assessee by defining it in a 
particular manner in its provident fund scheme rules for the purpose of recog-
nition of its fund. The High Court relied upon a circular dated January 
16, 
1941 issued by the Central Board of Revenue which providi'!d that unless com-
mission and bonuses were fixed periodical payments not dependent

Excerpt shown. Read the full judgment & AI analysis in Lexace.