Commissioner Of Income-Tax, Gujarat Ahmedabad v. Tejaji Farasram Kharawalla Ltd

A COMMISSIONER OF INCOME-TAX, GUJARAT AHMED ABAD TEJAH FARASRAM KHARAWALLA LTD. July 19, 1967 [J. C. SHAH, S. M. StKRl AND V. RAMASWAMI, JJ.] Indian Income-tax .4ct, 1922, s. 4(3) (vi)- Allowance to agent for expenses wholly and necessarily in the performance of duties--Exemption under section whether applicable to whole amount st sanctioned whether actually expended or not-'lncurred' whether includes 'to be incurred'. The respondents were selling agents for the goods manufactured C by another company. They were paid 7l% on the sales .as sellinll commission and 5')(;. as con_tingency expenses. The question in in .. come-tax proceedings was whether the amount not spent out of the grant for contingency expenses was exempt from taxation by virtue of s. 4(3) (vi) of the Indian Income-tax Act, 1922. The High Court in reference held that the "5% commission" received b;,: the respon-dents represented a special allowance to meet expenditure and was on that account exempt from tax. The Revenue appealed. HELD: (i) .In (he context in whic.h the expression 'incurred' occurs in s. 4(3) (vi) it undoubtedly means '.incurred or to be in-curred'. To qualify for exemption the allowance must be granted to meet expenses incurred- or to be incurred \Vholl~ and necessarily in the performance of the duties of an office or employment of profit. [41A] (ii) In framing s. 4(3) (vi) the intention of the framers of the E Act was to grant exemption in respect of amounts received by the assessee, not for his own benefit, but for the specific purpose of mee!'ing the expenses wholly and necessarily incurred o~ to be in-curred in the performance of his duties as agent. It would there-fore be reasonable to hold that the allowance granted to meet the expenses wholly and necessarily incurred or to be incurred in the performance of the duties of the office 01· employment of the grantee alone qualifies for exemption under the Act, and any surplus re-p maining in the hands of the grantee after meeting the expenses does not bear the character of the allowance for meeting expenses. This would be so even if the .employer has disabled himself from demand-~ng refund of the amount not expended for meeting the expenses Incurred or to be incurred in the performance of the duties of an office of employment or profit, and the surplus remaining In the hands of . the grantee acquires for the purpose of the Income-tax Act, the character. of additional remuneration. (4-0C-E] Tejaji Farasrom Kharaw'Jlla v. Commissioner. of Income-tax, Bombay (Mofussil), [19481 16 I.T.R. 260, disapproved. (iii) The allowance may be in respect of a period longer than the accounting year or years. But on that account the whole receipt reduced by the expenses actually incurred in the year of account is not lia~e to be brought to tax in that year. In such a case It will be the duty of the Income-tax Officer to determine the amount al-lowed in respect of the year of account in which the expenditure B has been incurred and the difference between the amount so deter-mind and the amount actually expended would alone be brought to ta&. [41G] The position in tbis respect remains the same even after the amendment of s. 4(3) (vi) by the l'.inilnce Act, 1955. [41B] CommiHioner of Income-t~. U.P. v. Sharma & Compan11, 57 A I.T .R. 470, disapproved, CIVIL APPELLATE JURISDICTION: Civil Apciai No. 2162 of 1966. Appeal from the judgment and order dated September 6, 9, 1963 of the Gujarat High Court in Income-tax Reference No. 9 of 1963. B, Sen, A. N. Kirpa/, R. N. Sachthey and S. P. Nayar, for the appellant. I. N. Shroff, for the respondent. The Judgment of the Court was delivered by