Law:

Section:

Section 36(1)(ii) of the Income-tax Act, 1961 - Bonus or commission - Assessment years 1963-64 and 1964-65 - Assessee-firm carried on business in textile chemicals, dye-stuffs and auxiliaries and supplied these materials to various textile mills - It entered into agreement with three of its employees for payment of certain commission - ITO doubted genuineness of these payments and disallowed assessee's claim in respect of said payments - On second appeal, Tribunal took a view that payment of commission to employees was not payment to themselves but was reimbursement of expenses necessary to be incurred for purpose of assessee's business - Tribunal recorded a finding that in trade of dye-stuffs and colour chemicals which were being sold to textile mills it was usual practice to pay secret commission to dyeing masters, printing masters etc. in order to secure orders - It was also noted that three employees of assessee-firm were visiting various mills with whom assessee had dealings and were securing business from those mills - Tribunal, accordingly, allowed assessee's claim under section 37 - Whether once in light of Tribunal's findings, test of commercial expediency was satisfied by assessee-firm, it must be held that case of assessee fell fairly and squarely within section 36(1)(ii) - Held, yes - Whether, therefore, Tribunal was right in holding that amount of commission paid to employees was allowable as deduction - Held, yes - Whether, however, assessee's claim was to be allowed under section 36(1)(ii) and not under section 37 - Held, yes FACTS Assessee-firm carried on business in the textile chemicals, dye-tuffs and auxiliaries and supplied these materials to various textile mills. During the relevant assessment years, the assessee firm paid certain commission to its employees. The ITO doubted the genuineness of these payments of commission to the assessee's employees and caused various inquiries to be made. Thereupon, the ITO brought on record of the case, letters from various mills to which the assessee supplied goods. The letters generally indicated that the dealings were directly made with the assessee-firm and not through any agency. The ITO held that…

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