GESTETNER DUPLICATORS (PVT.) LTD. v. COMMISSIONER OF INCOME-TAX, WEST BENGAL
Citation: [1979] 2 S.C.R. 788; 1978 INSC 259
Court: Supreme Court of India
Bench: P.N. BHAGWATI , V.D. TULZAPURKAR, R.S. PATHAK
Judgment date:
Case summary
1978 INSC 259. Supreme Court of India judgment dated 1978-12-14. GESTETNER DUPLICATORS (PVT.) LTD. v. COMMISSIONER OF INCOME-TAX, WEST BENGAL. Read the...
Judgment text
790 SUPREME COURT REPORTS GESTETNER DUPLICATORS (PVT. ) LTD. v. COMMISSIONER OF INCOME-TAX, WEST BENGAL December 14, 1978 [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 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 contributions 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 ---rould not be included within the meaning of "salary" and that the meaning of 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 recognition 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 commission and bonuses were fixed periodical payments not dependent on a contingency, they were not covered by the term "salary". On further appeal to this Court it was contended on behalf of the Revenue that the definition of "salary" in r. 2(h) clearly showed that it did not include commission and since commission was nothing but an allowance paid without reference to any time factor which is associated with salary or wages, it is not deductible under s. 36(1)(iv).
Allowing the assessee appeals, HELD : The commission paid by the assessee to its salesmen· would clearly fall within the expression "salary" as defined in r. 2(h) of Part A of the Fourth Schedule to the Act and the amounts representing proportionate provident fund contributions made by the assessee to its salesmen would be deductible under s. 36(1)(iv) of the Act. [802 El l(a) The expression "salary" has been defined in s. 17 as well as in r. 2(h) of P~rt-A of the Fourth Schedule. But each of the definition:; serves a different purpose. S'. nce this case is concerned. with contributions made to a .. recognised orovident fund and deductions tberoof under s. 36(1)(iv), it would be the definition of "salary" as given in r. 2(h) of Part-A of the Fourth Schedule, and not the one given in s. 17, that will be applicable. [797 F; 798 A-Bl (b) Conceptually salary and wages connote one and the samething viz. , remuneration or payment for work done or services rendered.
The former expression is gE. nerally used in connection with services of higher or non-manual type while 1he latter is used in connection with manual services. If conceptually salary and wages mean one and the same thing then salary could take the form of payment by reference to the time factor or by the job done. Jn the case of salary the recompense could be determined wholly on the basis of time spent on scr\-ice or wholly by the work done or partly by the t~me spent on service and partly by the work done. In other words, whatever be the basis on which such recompense is determined it would all be salary. [799 G; 801C] 12-40SCI/79 [1979] 2 S. C. R. ,. Gordon v. lmnings, 51 L. J. Q. B. 417; Mohmtdalli v. Union of India, AIR 1964 SC 980: referred to. (c) The definition of "salary" in r. 2(h) includes dearness allowance if the terrns of employment so provide and excludes all other allowances and perquisites. It docs not, in terms, exclude commission.
But though the dictionary meaning of the term "commission" is "a pro rata remuneration for work done as agent", in business practice commission covers various kinds of payments made under different circumstances. [801 E] (d) If under the terms of the contract of employment remuneration or recompense for the services rendered by the employee is determined at a fixed percentage of turnover achieved by him, then such remuneration or recompense \\"ill partake uf the character of salary, the percent~ge basis being the 111easure of the . salary, ·Therefore, such remuneration or recompense must fall within the expression "sala. ry" as defined in r. 2(h). [802 A] In the instant case under the term of the contract of employment the assessec had been paying to the salesmen, in addition to the fixed monthly salary. commi~sion at a fixed percentage of the turnover.
It is, therefore, a case where remuneration or recompense payable for the services rendered by the salesman is determined partly by reference to the time spent in the service and partly by reference to the volume of work done. The entire remuneration so d~termined on both the bases clearly partakes of the character of salary. [802 C-D] (d The Circular dated January 16, 1941 issued by the Central Board of Revenue did. not affect the question of deductibility because if the commission paid by the asbessec to its salesmen was covered by the expression "salary" on its true construction, the Board's. view or instructions could not detract from the legal position arising on such construction. What the Board, by the said circular, wanted to keep out of the term "salary" were payments by way of commissions \. Vhich did not partake of the character of salary. [802 F-GJ Bridge & Roofs Co. Ltd. v. Union of India & Ors. AIR 1963 SC 1474 ai p. 1477: held inapplicable.
2(a) The ·rribunal was right in its view that the provident fund maintained by the assessee ! iatis:fied the condition laid down in r. 4(c) of Part-A of the Fourth S~h"edule. [803 G]. (h) ,\ftcr taking into account the true nature of the commission payable by the assessee to its salesmen under the terms of the employment, the Commissioner granted recognition to the _provident fund, as far back as 1937 and that recognition continued to remain in operation during the :relevant assessment years. The provident fund clearly satisfied all the conditions laid down in r. 4 of Pa1i-A of the Fourth Schedule. It was, therefore, not open to the Taxing Authoriti~s to question the recognition on the ground that the assessee·s provident fund did not satisfy any particular condition mentioned i'll r. 4. For the sake of certainty and uniformity in administering the law the Taxing Authorities :;,hould proceed on the basis that the recognition granted and avail-fl able for any p Uacert•inty.
[803 H-804 Fl CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 565-570 of 1978. Appeal from the Judgment and Order dated 8-2-1977 of the Cal- the recognised Provident Fund governed the matter and since that definition excluded all other allowances and perquisites the commission GESTETNER DUPLICATORS v. C. LT. (Tulzapurkar, !. ) 793 paid by the assessee to its salesmen, which was nothing but some sort of allowance, could not be regarded as salary and, on that basis the Tribunal was pressed to accept the contrary view taken by the Appellate Assistant Commissioner for the assessment year 1962-63. The • Tribunal on a consideration of the rival submissions held that the commission paid by the assessee to various classes of salesmen was a part > . of the contractual obligation and as such was a part of the salary of • the employees and contributions made on that basis were liable to be under s. 36(l)(iv) of the Act.
On the other hand, counsel for the Revenue contended that notwith-standing the recognition accorded to the assessee's Provident Fund by the Commissioner of Income-Tax the assessee had to satisfy the taxing authorities every year that the Provident Fund maintained by it satisfied the conditions of Rule 4, particularly, the one contained in Rule 4(c) of Part A. of the Fourth Schedule to the Act and if for any particular assessment year the assessee's Provident Fund failed to satisfy the condition in Rule 4(c) of Part A of the Fourth Schedule to the Act the assessee could not claim deduction under s. 36(l)(iv) of the Act in respect of such portion of the contribution made by it to the Fund as was in breach of the said condition.
Secondly, he urged that by relying upon the fact of recognition obtained by it and the further fact that such recognition had remained in force during the relevant assessment years the assessee could not by-pass the real question that arose for determination before the taxing authorities for the relevant assessment years, namely, whether the expression 'salary' as defined in Rule 2(h) of Part A of the Fourth Schedule to the Act included or excluded commission paid by the assessee to its salesmen and he urged that the definition of th~ expression 'salary' as given in the said Rule 2 (h) clearly showed that the 'salary' did not include commission, for, according to him, the definition merely included dearness allowance and excluded all other allowances and perquisites and commission payabl trnction of the expression 'salary' as occurring in Rule 2(h) of Part A • of the Fourth Schedule; iu other words, in the matter of deductions claimable in respect of contributions to the Recognised Provident Fund qua both the employer and the employee the question has to be answered by reference to the true meaning of the expression 'salary' occurring in Rule 2(h).
Now, Rule 2(h) of Part A of the Fourth Schedule does not define the expression 'salary' conceptually but merely proceeds to state what is included therein and what is excluded therefrom and, therefore, one is required to turn to the dictionary meaning of that expression as also to ascertain how judicial decisions have understood that expression. According to the Shorter Oxford English Dictionary (3rd Edn. ) 'salary' means: "To recompense, reward; to pay for >Omething done;" In Jowitt's Dictionary of English Law (1959 Edn. ) the term is explained thus: "a recompense or consideration generally periodically made to a person for bi's service in another person's business; also wages, stipend or annual allowance. " Jn Stroud's Judicial Dictionary (4th Edn. ) the expression 'salary' is explained at item (2) thus : "Where the ell!
lllgement is for a period, is permanent or substantially permanent in character, and is for other than manual or relatively unskilled labour, the remuneration is • generally called a salary". [Per Latham C. J. , in Fedual Commissioner of Taxation v. Thompson (J. Walter) (Aui. ) Ply. Ltd. 69 C. L. R. 227]. It appears that conceptually 'salary' and 'wages' connote one and the • same thing, namely, remuneration or payment for work done or services rendered but the former expression is generally used in con· nection with servi<:ei of a higher or non-manual type while the latter is used in connection with manual services. In Gordon v. ·Jennings(') R Grover' if. observed as follows : 0) 51 LJ. B. 417. 800 SUPREME COURT REP OR TS [1979] 2 S. C. R. "Though this word (wages) might be said to include payment for any services, yet, in general, the word 'salary' is used for payment or services of a higher class, and 'wages' is confined to the earnings of labourers and artisans.
" 8 In Mohmedalli v. Union oif India(') this Court, while repelling the contention that the Employees' Provident Fund Act 1952 was inten- .. ' ded by Parliament to apply to employees who were mere wage earners and not salaried servants, has made observations clearly indicating ' that there is no difference between the two concepts of salary and wages. Chief Justice Sinha speaking for the Court observed in para 10 of the judgment as follows : "It is a little difficult to appreciate the distinction sought to be made•. Both 'salary' and 'wages' are emoluments paid to an employee by way of recompense for his labour. Neither of the two terms is a 'term of art'. The Act has not defined wages; it has only defined "basic wages" as all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash to him, ..........
'Salary', on the other hand, is remuneration paid to an employee whose period of engage-ment is more or less permanent in character, for other than manual or relatively unskilled labour. The distinction ) between skilled and unskilled labour itself is not very definite and it cannot be argued, nor has it been argued, that the remuneration for skilled labour is not 'wages'. · The Act itself has not made any distinction between 'wages' and 'salary'. Both may be paid weekly, fortnightly or monthly, • though remuneration for the day's work is not ordinarily termed 'salary'. Simply because wages for the month run into hundreds, as they very often do now, would not mean • that the employees is not earning wages, properly so called. • A clerk in an office may earn much less than the monthly wages of a skilled labourer. Ordinarily he is said to earn • his salary. But, in prindple, there is no difference between the two.
" It will thus appear clear that CQnceptually there is no difference between salary and wages both being a recompense for work done or (l) AIR 1964 SC 980 GESTETNER DUPLICATORS v. C. l. T. (Tulzapurkar, !. ) 801 ~ services rendered, though ordinarily the former expression is used in connection with services of non-manual type while the latter is used in connection with manual services. It is further common know-ledge that this compensation to the labourer or artisan could be specified sum for a given time of service or a fixed sum for a specified work i. e. payment made by the job, the commonest example of the , latter category being a piece-rated worker. In other words, the ex- I pression 'wages' does not imply that the compensation is to be determined solely upon the basis of time spent in service; it may be determined by the work done; it could be estimated in either way.
If conceptually salary and wages mean one and the same thing then salary could take the form of payment by reference to the time factor or by the job done. In fact, in the case of salary the recompense could be determined wholly on the basis of time spent on service or wholly by the work done or partly by the time spent in service and partly by the work done. In other words, whatever be the basis on which such recompense is determined it would all be salary. Having reached the above conclusion, we have to consider the nature of recompense that is being made by the assessee to its salesmen, whether the whole of it partakes of the character of salary or not? The definition of 'salary' in Rule 2(h) includes dearness allowance if the terms of employment so provide and excludes all other allowances and perquisites.
It does not in terms exclude 'commission' as such and, in our view rightly, for, though ordinarily according to \ the Shorter Oxford English Dictionary 'commission' means 'a pro rata - remuneration for work done as agent', in business practice commission covers various kinds of payments made under different circumstances. In Raja Ram Kumar Bhargava v. Commissioner of Income-Tax, U. P. (supra) the Allahabad High Court has pointed out how in certain circumstances commission payable to an employee may, in fact, repre- • sent the salary receivable by him for the services rendered to the employer. At page 694 of the report the relevant observation run thus "The word "commis-sion", in business practice, covers various kinds of payments made under different circums- • tances.
There are cases where a servant is employed by a businessman and, as a condi"tion of his employment, it is agreed prior to the services having been rendered that he would be paid for his services at a fixed rate of percentage of the turnover or profits. In such a case, it is clear that the commissi~n payable to the employee will, in fact, repre-sent the salary to be drawn by him for his services. The payment on the percentage basis will only determine the measure of the salary. " 802 SUPREME COURT REP OR TS [1979] 2 S. C. R. It is thus clear that if under the terms of the contract of employment remuneration or recompense for the services rendered by the.
employee is determined at a fixed percentage of turnover achieved by him then such remuneration or recompense will partake of the character of salary, the percentage basis being the measure of the salary and therefore such remuneration or recompense must fall within th~ expression 'salary' as defined in Rule 2(h) of Part A of the Fourth Schedule to the Act. In the instant case before us, admittedly, under their contracts of employment the assessee has been paying and did pay during the , previous years relevant to the three assessment years to its salesmen, in addition to the fixed monthly salary, commission at a fixed percentage of the turnover achieved by each salesman, the rate of percentage varying according to the class of article sold and the category to which each salesman belonged.
The instant case is,, therefore, an instance where the remuneration or recompense payable for the services rendered by the salesmen is determined partly by reference to the time spent in the service and partly by reference to the volume of work done. But it is clear that the entire remuneration so determined on both the basis clearly partakes of the character of salary. In our view, therefore, the commission paid by the asscssee to its salesmen would clearly fall within the expression 'salary' as defined in Rule 2(h) of Part A of the Fourth Schedule to the Act and as such the three sums of Rs. 95,4211-, Rs. 1,00,564/- and Rs. 1,17,969/- representing proportionate contributions appertaining to the commission paid by the assessee to its salesmen would be deductible under s. 36(1) (iv) of ) the Act.
Turning to the Circular dated January 16, 1941 issued by the Central Board of Revenue on which counsel for the Revenue has relied, it cannot, in our view, affect the question of deductibility, for, • if the commission paid by the assessee to its salesmen is covered by the expression 'salary' on its true construction, which, according to us, it does, the Board's view or instructions cannot detract from the legal • position arising on such proper constrnction. In any case we are of the view that by the said Circular what the Board wants to keep out of the term 'salary' are payments by way of commission which do not partake of the character of salary. Similarly the decision of this Court in Mis. Bridge & Roof Co. 's case (supra) on which the High Court has relied cannot avail the Revenue. In the first place it was a case under the Provident Fund Act, 1952 where this Court was required ; to construe the expression 'basic wages' as defined in s.
2 (b) of that Act and to decide whether 'production bonus' was included in that expression and it was in that context that this Court made observations GESTETNER DUPLICATORS v. C. I. T. (Tulzapurkar, l. ) 803 to the effect that the said expression as defined therein di\i,. n9! include . any bonus, commission or other similar allowances. ~μdly, as against the definition of 'basic wages' in s. 2(b) (ii) whi~h, eJ[cluded carry dearness allowance, house rent allowance, over-time ,a,l)owance, bonus, commission or any other similar allowance, s. 6, qf the Act provided for inclusion of dearness allowance for the purposes of con- . ·tribution and, therefore, this Court was concerned with tryil\g to dis- " ·cover some basis for the exclusion in cl. (ii) of s. 2 (b) as also for ~he inclusion of dearness allowance and retaining allowance (if any) in s. 6 of that Act and the Court found that the basis for inclusion in s. 6 and exclusion in cl. (ii) of s.
2(b) was that whatever was payable in all concerns and was earned by all permanent employees . vas included for the purpose of contribution under s. 6 but whatever was not payable by all concerns and was not earned by all employees ·of a concern was excluded for the purposes of contribution and that is why commission or similar allowances were e:<cluded from the. definition of 'basic wages', for commission and allowances were not necessarily to be found in all concerns nor were they necessarily earned by call the employees of the same concern. It is, therefore, clear that the ratio of the decision and the observations made by this Court in ·different context in that case would be inapplicable to the facts of the present cas~. Having regard to the above discussion it is clear that the High ·Court's view on the first question is clearly unsustainable and that \ •question must be answered in favour of the assessee and against the ·Revenue.
Dealing next with the second question it seems to us clear that 'having regard to our view on the proper construction of the expression lllf • ·'salary' occurring in Rule 2(h) of Part A of the Fourth Schedule to 'the Act it must be held that the Tribunal was right in holding that the Provident Fund maintained by the assessee satisfied the condition laid ·down in Rule 4 ( c) of Part A of the Fourth Schedule and that question . also must be answered in favour of the assessee and against the Reve- ·nue However, we would like to make some observations with regard to the true impact of the recognition granted by the Commissioner of • Income-Tax to a Provident Fund maintained by an assessee.
The 'facts in the present case that need be stressed in this behalf are that ·it was as far back as 193 7 that the Commissioner of Income-tax had ·granted recognition to the Provident Fund maintained by the assessee under the relevant rules under 1922 Act, that such recognition had 'been granted after the true nature of the commission payable by the assessee to its salesmen nuder their contracts of employment had been brought to the notice of the Commissioner and that said recognition had continued to remain in operation during the relevant assessment years in question; the last fact in particular clearly implied that the Provident Fund of the assessee did satisfy all the conditions laid down in Rule 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation we do not think that it • ..
was open to the taxing authorities to question the recognition in any of the relevant years on the ground that the assessee's Provident Fund , did not satisfy any particular condition mentioned in Rule 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the Provident Fund satisfies all the conditions under Rule 4 of Part A of the Fourth Schedule to the. Act and not sit in judgment over it. There is ample pawer conferred upon the Commissioner under Rule 3 of Part A of the Fourth Schedule to withdraw at any time the recognition already granted if, in his opinion, the Provident Fund contravenes any of the conditions required to be satisfied for its recognition and if during asses.
ment proceedings for any particular assessment year the taxing authority finds that the Provident Fund maintained by an assessee has contravened any of the conditions of recognition he may refer the question of withdrawal of recognition to the Commissioner but until the Commissioner acting under the powers reserved to him withdraws j such recognition the taxing authority must proceed on the basis that the Provident Fund has sat)ified all the requisite conditions for its recognition for that year; any other course is bound to result in chaos and uncertainty which has to be avoided. Having regard to the above discussion, both the questions are_ • accordingly answered in favour of the assessee and the appeals are allowed with costs . • P. B. R. Appeal allowed ..
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