Law: Income Tax Act, 1922

Section: 10(2)(xv)

Section 36(1)(ii) , read with section 37(1), of the Income-tax Act, 1961 [Corresponding to section 10(2)(x), read with section 10(2)(xv), of the] Indian Income-tax Act,1922 - Bouns or Commission - Assessment year 1960-61 - Whether if any bonus or commission is paid to an employee over and above his salary, claim for deduction in respect of such bonus or commission would have to be tested under section 10(2)(x) of 1922 Act but if such bonus or commission represents his salary or is part of his salary, section 10(2)(xv) of 1922 Act would apply - Held, yes - Whether reasonableness of payment with reference to factors mentioned in section 10(2)(x) of 1922 Act has to be judged not on any subjective standard of assessing authority but from point of view of commercial expediency - Held, yes - FACTS One 'K' was an employee of the assessee-firm for several years prior to Samvat year 2014. 'K' was drawing a "modest salary" of Rs. 200 per month. Besides, being an employee of the assessee-firm, he was also a partner in a firm called 'RR'. This firm was dissolved in the end of Samvat year 2013 and thereafter 'K' approached the partners of the assessee-firm and stated to them that either he should be taken as a partner in the assessee-firm or he should be relieved so that he could joint some other person as a partner with whom he had already made some arrangement. The assessee-firm was not in a position to spare the services of 'K' and his continuance with the assessee-firm was absolutely essential in connection with out-station sales which were extensive and spread district wise as also in connection with recovery of outstanding from out-station sales. It was, therefore, not possible for the assessee-firm to relieve 'K' and to let him go. The partners of the assessee-firm were at the same time not prepared to take up 'K' as a partner. An agreement was, therefore, arrived at between the assessee-firm and 'K' which struck a middle path. Under the said agreement 'K' agreed to continue to work for the assessee-firm up to the end of Samvat year 2015 and in consideration for this, the assessee-firm agreed to pay to 'K' for Samvat year 2014 the salary which he was then receiving…

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