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

- **Citation:** [1979] 2 S.C.R. 788
- **Court:** Supreme Court of India
- **Decided:** 1978-12-14
- **Case number:** Civil Appeal Nos. 565-570 of 1978
- **Bench:** P. N. Biiagwati, V. D. 'TuLZAPURKAR, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gestetner-duplicators-pvt-ltd-v-commissioner-of-income-tax-west-bengal-7637
- **Pages:** 17

## Headnote

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 provident 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 recognisin& 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 commission 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 commission 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 deduction 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 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
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 f

## Text

_Characters 0–39,379 of 47,123. This is a partial read: ask again with offset=39379 for what follows._

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 provident 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 recognisin& 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 commission 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 commission 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 deduction 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 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
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 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
D
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
E
F
(b) Conceptually salary and wages connote one and the samething viz.,
remuneration or payment for work done or services rendered.
The
former
G
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
H
on which such recompense is determined it would all be salary. [799 G; 801C]
12-40SCI/79
A
B
c
D
E
790
SUPREME COURT REPORTS
[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.
F
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
G
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 availfl
able for any p<H"licula.r as~essment year impJi.ed that the provident fund satisfied
all the conditions in that rule.
Under r. 3 the Commissioner had ample power
to ·withdrUw at any time the recognition already granted if the provident fund
contravened any of th-e conditions required to be satisfied for its recognition.
,.
GESTETNER DUPLICATORS v. c .. I.T. (Tulziipurkar, J.)
7 91
flut until the. Commissioner withdrew such recognition, theTaxing Authorities
.must proceed on the basis that the provident fund satisfied all the requisite
-conditions for its recognition for that year.
Any other course would result in
>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-
<:utta High Court in Income Tax Reference No's 398, 399 and 400/69
and 456 of 1969.
Devi Pal and D. N. Gupta for the Appellant.
A
B
S. T. Desai, B. B. Ahuja and Miss A. Subhashini for the ResponC
<lent.
The Judgment of the Court was delivered by
TULZAPURKAR, J. These appeals, by certificates are directed against
the common judgment and order rendered by the Calcutta High Court
on February 8; 1977 in Income Tax Reference No.156 of 1969 and
D
Income Tax References Nos. 398, 399 and 400 of 1969, whereby the
assessee'.s claim for deduction under s.36(1) (iv) of the Indian Income
Tax Act, 1961 (hereinafter referred to as 'the Act') in respect of three
~mns of Rs.95,421/-, Rs.1,00,564/- and Rs.1,17,969/- out of the
total contributions made by the assessee to a recognised Provident
Fund for the assessment years 1962-63, 1963-64 and 1964-65 resE
pectively was disaUowed and the principal question raised in these
.\_ appeals is whether the expression "salary" as defined in Rule 2(h) in
· Part A of the Fourth Schedule to the Act includes "Commission" paid
by the assessee to its salesmen in terms of their contracts of employ-
:,-
ment?
•
•
The assessee is a private limited company and carries on the business of manufacture and sale of duplicating machines and accessories.
It has in its regular employment three categories of salesmen-machine
salesmen, mixed salesmen and supply salesmen.
As a term of the
contract of employment between the a'ssessee and the salesmen of the
aforesaid categories, the assessee, besides paying a fixed monthly salary
also paid commission to them at fixed percentage of turnover achieved
by each salesman, the rate of percentage varying according to
th·~
dass of article sold and the category to which the salesman belonged.
The assessee maintained a regular Provident Fund for its employees
which was recognised by the Commissioner of Income-Tax some time
in 1937 and the said recognition continued and was in force during
the relevant years in question.
In the previous years ending 31st
December 1961.
31st December 1962 and 31st December 1963 deF
G
H
-~
A
B
c
D
E
F
G
fl
792
SUPREME COURT REPORTS
[1979] 2 S.C.R.
vant to the assessment years 1962-63, 1963-64 and 1964-65 the
assessee made contributions, out of its own moneys, to the individual
accounts of these salesmen in the said Provident Fund on the basis of
salary and commission paid to them and claimed such contributions as.
allowable deductions under s. 36(1) (iv) of the Act and in that behalf
reliance was placed by the assessee upon Rule 2 of the assesseecompany's Recognised Provident Fund Scheme Rules under which.
"salary" meant not only the fixed monthly salary but also the commission and dearness allowance as might be paid by the company to its
employees.
Out of such total con.!Jcibutions the Income-Tax Officer
disallowed the sums of Rs. 95,421/-, Rs. 1,00,564/- and Rs. 1,17,969 /-
on the ground that these amounts pertained to the commission paid by
the assessee to its salesmen for the three years respectively and that
under Rule 2(h) of Part A of the Fourth Schedule to the Act, which
was applicable, the expression "salary" did not include such commission. Three appeals, for the aforesaid three years, filed by the assessee
were heard by two different Appellate Assistant Commissioners, one of
whom rejected the appeal for the assessment year 1962-63 in view of
Rule 2 (h) of Part A of the Fourth Schedule to the Act but the other
Appellate Assistant Commissioner allowed the appeals for the assessment years 1963-64 and 1964-65 by accepting the assessee's contention.
The assessee as also the Revenue preferred appeals to
the
Appellate Tribunal.
On the one hand, relying upon the dictionary
meaning of the expression "salary" as given in the Shorter Oxford
Dictionary and Stroud's Judicial Dictionary and upon the manner in
which the term was defined in Rule 2 of the assessee's Recognised
Provident Fund Scheme Rules, it was contended on behalf of the
assessee that the commission of the nature paid by it to its salesmen
!Vas nothing but a composite part of the salary itself, the same being
determinable as per the terms of the contract and as such the contributions on the basis of such commission made by the assessee to
the
Provident Fund were deductible under s.36(1 )(iv) of the Act; it was
further contended that since these payments were being admittedly
made to a Provident Fund recognised by the Commissioner of IncomeTax, which reeognition was in force during the relevant years,
the
Taxing Authorities could not disallow the deduction claimed by the
assessee, and the view taken by the Appellate Assistant Commissioner
in respect of assessment years 1963-64 and 1964-65 was canvassed for
acceptance.
On the other hand, the Revenue contended before the
Tribunal that the definition of the expression "salary" as given in Rule
2(h) of Part A of the Fourth Schedule to the Act which applied
te>
the recognised Provident Fund governed the matter and since
that
definition excluded all other allowances and perquisites the commission
-)..
•
•
> •
•
~
.t
'
•
•
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
<ledncted under s.36(1)(iv) of the Act. It also took the view that
since the Provident Fnnd maintained by the assessee was a recognised
Fund and since it fulfilled the condition laid down in Rule 4(C) of
Part A of the Fourth Schedule to the Act the contributions by the
employer to the same would be entitled to deduction under the said
provision. In this view of the matter the Tribunal by its order dated
June 12, 1968 allowed the assessee's appeal and dismissed the appeals
-0f the Department.
At the instance of the Revenue the following two questions were
referred to the High Court' for its opinion:
"(l) Whether, on the facts and in the circumstances of
the case, the sums of Rs. 95,421/-, Rs. 1,00,564/- and
Rs. 1,17,969/- disallowed by the Income Tax Officer out of
the total contributions made by the assessee towards the provident fund were allowable under section 36(1) (iv) of the
Income Tax Act, 1961 for the assessment years 1962-63,
1963-64 and 1964-65 respectively ?
(2) Whether, on the facts and in the circumstances of
the case, the Tribunal was right in holding that the provident
fund maintained by the assessee satisfied the condition laid
down in Rule 4(c) of the Fourth Schedule,
Part 'A' of
the Income Tax Act, 1961 ?"
A
c
D
E
F
The former
question was the
subject-matter of Income
Tax
Reference No.156 of 1969 made under s.256(1) of the Act while the
latter was the subject-matter of Income-tax References Nos. 398, 399
G
and 400 of 1969 made under s.256(2) of the Act.
These References
were heard together and disposed of by the High Court by a common
judgment and order dated February 8, 1977. Rejecting the contentions urged on behalf of the assessee the High Court answered both
the questions in the negative and in favour of the Revenue. In doing
so the High Court principally relied upon (3) Rule 2(h) of Part A
II
of the Fourth Schedule to the Act wh~re the expression "salary" ha'
been defined as inclusive of dearness allowance but exclusive of all
A
B
c
D
E
F
G
H
794
SUPREME COURT REPORTS
[1979] 2 s.c.R.
other allowances and perquisites, (b) Circular No. 6 dated January 16r
1941 issued by the Central Board of Revenue under the Indian Income
Tax A,ct, 1922 but which has been continued under 11.297 (k) of the:
Act, which provided that unless commission and bonuses are fixed
periodical payments not dependent on a contingency, they are not
covered by the term "salary" as used in Chapter IXA of the Act ( 1922
Act) and (c) observations of this Court in Mis Bridge & Roofs Co.
Ltd. v. Union of India and Ors.(') to the effect that "commission and'
other similar allowances are excluded from the definition of "basic
wages" under the Provident Fund Act 1952 because it was not ru
universal rule that each and every establishment must pay commission
to its employees''.
The High Court further held that the Circular
No. 80 dated March 4, 1972 on which reliance was placed by the·
?Ssessee and which stated that "if the terms and conditions of service
are such that commission is paid not as a bounty or benefit but is paid
as a part and parcel of the remuneration for services rendered by the·
employees such payment may partake of the nature of salary rather
than as a benefit or perquisite" could not be availed of because the·
same was not in ·existence during the relevant years and further
it
had been issued under s.40(c) (iii) of the Act and would not apply
to s.36(1)(iv). The High Court also held that the ordinary meaningof "salary" was a fixed monthly payment while "commission" was not
such payment and, therefore, it could not be included within the scope·
and ambit of the term "salary", the meaning of which could not be
extended by the assessee company by defining it in a particular manner
in its Provident Fund Scheme Rules for the purposes of recognition of
its Fund and deductibility as well.
The High Court's view on both
the questions is challenged by the asscssee in the instant appeals preferred on the strength of the certificates granted by that Court under
s.261 of the Act.
Counsel for the assessee raised a two-fold contention in support of
the appeals.
In the first place he contended that once recognition was:
granted by the Commissioner of Income-Tax to the Provident Fund
maintained by the assessee under the relevant rules and such recognition was in force during the relevant assessment years, the Taxing
Authorities could not disallow the deductions claimed by interpreting
the expression "salary" in Rule 2(h) of Part A of the Fourth Schedule
to the Act so as to exclude the "commission" thaJ: was paid by the
assessee to its salesmen, for, by doing so the Taxing Authorities would
be sitting in judgment over the recognition granted and allowed to be
retained by the Commissioner of Income-Tax to the assessee. It was
(1) AIR 1963 S.C. 1474 at p. 1477.
' •
•
•
•
•
•
GESTETNER DUPLICATORS v. C,.!.T. (Tulzapurkar, l.)
795
pointed out that Rule 4 of Part A of the Fourth Schedule to the Act
set out the conditions, particularly, the one contained in cl. ( c) of the
said rule that were required to be satisfied before recognition could be
granted and in the instant case the Commissioner after having been
satisfied that the said conditions had been fulfilled had granted recognition to the Provident Fund maintained by the assessee.
In particular,
counsel placed reliance upon the correspondence which took place between the assessee and the Commissioner of Income Tax, West Bengal,
during the course of which,, the Commissioner had by his letter dated
September 9, 1937 required the assessee to inform him of the basis on
which the commission payable to the salesmen participating in the fund
was computed with a view to seeing whether the commission would be
includible in the definition of "salary" for purposes of Chapter IXA
of the 1922 Act and the assessee had by its reply dated September 11,
193 7 stated that the commission was the· monthly amount payable
to
the salesmen in accordance with their written contract and was based
011 a fixed term of rate and that it was after such correspondence that
recognition was granted to the Provident Fund of the assessee and that
the said recognition had continued and was in operation during the
relevant assessment years.
He, therefore, urged that it was not open
to the Taxing Authorities to reach a conclusion that the Provident Fund
'
of the assessee did not satisfy the condition laid down in Ruic 4 ( c)
of Part A of the Fourth Schedule to the' Act during the relevant years
nor was it open to them to disallow the deductions claimed under ,.36
(1 )(iv) of the Act by interpreting the expression "salary" in Rule
2(h) in Part A of the Fourth Schedule to the Act as being exclusive of
the commission of the nature and kind paid by the asse8see to
its
salesmen. Secondly, counsel contended that on a true and proper
construction of the expression "salary occurring in the said Ruic 2(h)
the commission of the nature and type paid by the assessee to its salesmen under the terms of their contract of employment would be included or covered by that expression.
Aq:ording to him, commission in
business practice covered various kinds of payments made
under
different circumstances and in the cases where a servant was employed
by a businessman and as a condition of his employment it wa11 agreed
that he would be paid for his services at a fixed rate of percentage over
the turnover it was clear that such commission payable to the employee
will par take of the character of "salary" received by·bim for his services.
the percentage basis being tho measure of the salary; in other words,
according to him, there was no difl'erenee between the concept of salary
and the concept of commission if the latter was of the aforesaid nature
or kind and as such the expression ~lary in Rule 2 (h) would include
.such commi~ion.
In this behalf ho rolled upon a decision of the A!lahaA
B
c
D
F
G
H
A
B
c
D
E
F
G
H
796
SUPREME COURT REl'ORTS
[1979] 2 s.c.R.
bad High Court in the case of Raja Ram Kumar Bhargava v. Commissioner of lncome Tax, U.P.(')
He urged that the decision of this
Court in M/s Bridge & Roofs Co. Ltd. v.
Union of lndian & Ors.
(supra) on which the, High Court has relied was inapplicable since
it
was a case under the Provident Fund Act, 1952 and this Court was
required to construe the term 'basic wages' appearing in that Act and
iii that context it observed that that term did not include any bonus,
commission or other similar allowances.
He, therefore, urged that the
Tribunal was right in allowing the deductions claimed by the assessee
under s.36(l)(iv) of the Act.
On the other hand, counsel for the Revenue contended that notwithstanding 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<;
by the assessee to its salesmen was nothing but an allowance paid
without reference to any time factor which is associated with salary or
wages as an important concomitant thereof.
In this behalf reliance
was also placed by him upon the Circular No.6 dated January 16,
1941 issued by the Central Board of Revenue under the 1922 Act and
continued under s.297(k) of the 1961 Act wherein on the question
whether the term 'salary' as .used in Chapter IXA (of the. old Aet)
(I) (1963) 47 I.T.R. 689.
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GESTETNER DUPLICATORS v. c.I.T. (Tulzapurkar, !.)
-included commissions and bonuses paid to the employees, the Board
·expressed its view that "unless commissions and bonuses are fixed
periodical payments not dependent on a contingency they are
not
-cove;red by the term 'salary' as w;ed in Chapter IXA of the
Act."
·Counsel further contended that in the matter of deductions claimable
in respect of contributions to the Provident Fund the position of the
employer could not be different from that of the employee and in
regard to employee's contribution the condition required to be satisfied
in Rule 4 (b) was to the effect that the contribution of an employee in
any year shall be a definite- proportion of his 'salary' for that year and
shall be deducted by,J~e employer from the employee's 'salary' in that
proportion at each periodical payment of such salary in that year, and
credited to the employee's individual account in the Fund and under
s.80C read with Rule 7 of Part A of the Fourth Schedule to the
Act
the employee is entitled to a deduction in respect of his contribution
which pertains to a definite proportion of the 'salary' which would not
include commission.
He therefore, urged that the High Conrt was
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-of the Revenue.
As stated at the outset, in our view, the main question raised in
these ap!'!'als is whether the expression 'salary' as defined in Rule 2(h)
of Part A of the- FogrJh Schedule to the Act includes commission
payable by an assessee to his or its employees in terms of their contracts of employment ?
We shall, therefore, address ourselves to that
question first and then deal with the aspect regarding the true impact
of the recognition granted by the Commissioner of Income Tax under
the relevant Rules to a Provident Fund maintained by an assessee.
The expression 'salary' has been defined in s. 17 of the Act as well
as in Rule 2(h) of Part A of the Fourth Schedule to the Act but each
of the said definitions serves a different purpose.
Secti.on 17 defines
the expression 'salary' for purposes of ss. 15 and 16 which deal with
"Salaries" as a head of income, and under cl.(iv) of sub-s.(1) that
expression includes:
"any fees, commissions, perquisites or profits in lieu of
or in addition to any salary or wages."
In Part A of the Fourth Schedule to the Act, which contains rules
relating to Recognised Prmlident Fu_nds the word 'salary' has been
.defined in Rule 2(h) thus :
"Salary" includes dearness allowance, if the terms of
employment so provide, but excludes all other allowances
and perquisites."
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SUPREME COURT REPORTS
[1979] 2 s.c.R.
Since wo are concerned in this case with contributions made to a.
recognised Provident Fund and deductions thereof under s. 36(1) (iv)
it will be the definition of 'salary' as given in Rule 2 (h) of Part A of
the Fourth Schedule to the Act and not the one given in s. 1 7 that will
be applicable and will have to be considered. Under s. 36(1) (iv) the:
deduction allowable is in respect of
"any sum paid by the assessee as an employer by way of
contribution towards a Recognised Provident Fund or an
approved superannuation fund, subject to such limits as may
be prescribed for the purpose of recognising the Provident
Fund or approving the superannuation fund, as the case may
be."
Rule 2(c) of Part A of the Fourth Schedule defines contribution" as meaning
"any sum credited by or on behalf of any employee out
of his salary, or by an employer out of his own monies, to the
individual account of an employee, but does not include any
sum credited as interest."
Rule 4 of Part A of the Fourth Schedule Jays down the conditions-.
which aro required to be satisfied by a Provident Fund in order that
it may receive and retain recognition and the conditions in els. (b),
and (c) are material and these conditions are:
"4(b) the contributions of an employee in any year shaU
be a definite proportion of his salary for that year, and shall
be deducted by the employer from the employee's salary in
that proportion,. at each periodical payment of such salary in
that year, and credited to the employee's individual account
in the fund;
( c) the contributions of an employer to the individual
aocount of an employee in any year shall not exceed
the amount of the contributions of the employee in that year,
and shall be credited to the employee's individual account at
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intervals not exceeding one year."
It may be stated that so far as the employer is concerned therontributions credited by him to the employee's ipdividual account in
the funds are deductible under s. 36( I) (iv) whereas the contributions.
of an employee are deductible in the computation of his total income·
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under s.80C read with Rule 7 of Part A of the Fourth Schedule to the
Act and the scheme of els. (b) and ( c) of Rule 4 of Part A of the
Fourth Schedule does suggoi;t that in the matter of deductions claim--
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GESTETNER DUPLICATORS v. C.J.T. (Tulzapurkar, !.)
7 99
able in respect of contributions to the recognised Provident Fund the
position of both the employer and the employee would be the same;
but since in the case of an employee his contributions are to be a
definite proportion of his salary for a particular year, the question
whether such proportion would be inclusive of commission received by
him from. his employer must depend upon the true meaning or cons·
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(')
Grover' if. observed as follows :
0) 51 LJ.B. 417.
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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."
In Mohmedalli v. Union oif India(') this Court, while repelling the
contention that the Employees' Provident Fund Act 1952 was intended 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
engagement 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."
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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
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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 knowledge that this compensation to the labourer or artisan could be a
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 expression '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, represent 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 circumstances.
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, represent the salary to be drawn by him for his services.
The payment on the percentage
basis
will
only
determine the
measure of the salary."
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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.