Law:

Section:

Section 119 of the Income-tax Act, 1961 [Corresponding to section 5(8) of Indian Income-tax Act, 1922] - Central Board of Direct Taxes - Instruction to sub-ordinate authorities - Assessee-managing agent claimed exemption of amount received by it from managing company over and above usual commission, on basis of notification issued by Finance Department - It was seen from records that claim for deduction in respect of aforesaid payment by managed company had been disallowed on ground that said amount had not been laid out wholly and exclusively for purpose of business - Whether in aforesaid circumstances, it could be concluded that all conditions mentioned in Finance Department Notification were not fulfilled - Held, yes - Whether, therefore, Tribunal was justified in disallowing assessee claim - Held, yes Circulars and Notifications : Finance Department Notification No. 878-F- dated 24-3-1928 FACTS The assessee was managing agent of a company. In consideration of the facts that the managed company had incurred losses, the assessee relinquished the office allowance and managing agency commission. Moreover, it had also relinquished the interest on the loan advanced by it to the managed company. Subsequently, when the managed company began to make profits, it by special resolution, paid the assessee certain amount over and above their usual remuneration. In the assessment of the managed company deduction of this amount was not allowed. The assessee, however, in its assessment claimed exemption in respect of aforesaid amount on the basis of the Finance Department Notification No. 878F dated 24-3-1928. The Tribunal disallowed the assessee's claim. On reference : HELD In terms of the notification, the exemption from taxation in respect of a sum received by an assessee from a business on account, inter alia,of commission can be claimed only on three conditions, namely : (1)Where such sum has been paid out of or determined with reference to the profits of the business ; (2)Where by reason of such mode of payment or determination the sum paid has not been allowed as a deduction but has been included in the profits of the business ; and (3)Where on the sum so disallowed…

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