Law:

Section:

Section 36(1)(ii) of the Income-tax Act, 1961 - Bonus or commission - Assessment year 1963-64 - Whether it is not required that there should be any extra services rendered by an employee before payment of commission to him can be justified as an allowable expenditure - Held, yes - Assessee-firm was carrying on business with help of two employees namely 'S' and 'G' - Business of assessee-firm consisted of sole selling agency of one OCM in respect of yarn, cloth and blankets - Since assessee showed very satisfactory turnover, OCM started giving to assessee, in addition to usual commission, overriding commission at rate of 2½ percent on sales affected by assessee - Assessee in turn decided to give to 'S' and 'G' commission at rate of ½ percent out of 2½ percent overriding commission received from OCM - Assessee's claim for this amount of commission paid was rejected by revenue authorities - On reference, High Court affirmed decision of authorities below holding that there was no evidence to show that any extra services were rendered by 'S' and 'G' and that they were responsible for increase in sales and enlargement of overriding commission - On instant appeal, it was seen that 'S' and 'G' were infact persons attending to business of assessee - 'G' was an experienced and seasoned businessman it was and he was also advising OCM in regard to designs etc., and he and 'S' were primarily responsible for flourishing state of business - Whether, on facts, and having regard to aforesaid legal position, ex-gratia commission paid to 'S' and 'G' could not be regarded as unreasonable - Held, yes - Whether, therefore, amount of commission paid to them was to be allowed as deductible expenditure under section 36(1)(ii) - Held, yes FACTS The assessee-firm consisted of five 'partners'. One of the partners i.e. 'M' was looking after the day to day management of the business of the assessee and he was assisted by 'S' and 'G' who were engaged as employees of the assessee. The business of the assessee firm consisted of sole selling agency of OCM in respect of yarn, cloth and blankets manufactured by OCM and for the sales effected by the assessee as such sole selling agents, commission…

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