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PETITIONER: GESTETNER DUPLICATORS (PVT.) LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, WEST BENGAL

DATE OF JUDGMENT14/12/1978

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. BHAGWATI, P.N. PATHAK, R.S.

CITATION:  1979 AIR  607            1979 SCR  (2) 788  1979 SCC  (2) 354  CITATOR INFO :  RF         1992 SC 803  (22)

ACT:      Income-tax Act, 1961-s.17(1) (iv) and r. 2(h) of Part A of Fourth Schedule-  Scope of.      Salesmen entitled  to commission in addition to salary- Assessee  credited  into  the  provident  fund  accounts  of salesmen its  share of  PF contribution  calculated on  both salary  and  commission-Assessee’s  contribution  of  PF  on commission, if  could be  claimed as  an allowable deduction under s. 36(1)(iv).      Words  and   phrases  :  Salary-Meaning  of-Salary,  if includes commission.

HEADNOTE:      The expression  "salary," under  s.  17(1)(iv)  of  the Income Tax  Act,  1961,  includes  "any  fees,  commissions, perquisites 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  all other allowances and perquisites, where an assessee, as  an employer,  has  paid  any  sum  by  way  of contribution  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   recognising  the   provident  fund.  The  term "contribution’ is  defined in  r. 2(c),  of part  A  of  the Fourth Schedule  as any  sum credited by or on behalf of any employee out  of his 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" meant 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 salary,  the assessee  paid to  each of the salesmen commission at  a fixed  percentage of  turnover achieved  by

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them. The  assessee’s shares  of  the  contribution  to  the provident fund was 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 claimed as allowable  deduction under  s. 36(1)(iv)  the  Income-tax Officer disallowed  that part of the assessee’s contribution which related  to the  amounts calculated  on the  basis  of commission paid  to the salesmen on the ground that under r. 2(h) of  Part  A  of  the  Fourth  Schedule  the  expression "salary" did not include commission paid to the employees. 789      The assessee’s appeal in respect of the assessment year 1962-63 was rejected by an Appellate Assistant Commissioner; but in  respect of  the other  two assessment  years another Appellate Assistant Commissioner allowed its appeals.      On  further  appeals  both  by  the  assessee  and  the Department the  Appellate Tribunal  held that the commission paid being  a part  of the  contractual obligation, it was a part of  the salary  paid to  the  employees  and  therefore contributions made  towards provident fund on the commission were allowable as a deduction under s. 36(1)(iv) of the Act, and secondly  since the provident fund was a recognised fund which fulfilled  the 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 could  not be included within the  meaning of  "salary" and that the meaning of 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 provided 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 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 E]      1(a) The  expression "salary" has been defined in s. 17 as well  as in r. 2(h) of Part-A of the Fourth Schedule. But each of  the definitions  serves a  different purpose. Since this  case   is  concerned  with  contributions  made  to  a recognised provident  fund and  deductions thereof  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-B]

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    (b) Conceptually  salary and  wages connote one and the samething viz.,  remuneration or.  payment for  work done or services rendered.  The former  expression is generally used in connection  with services  of higher  or non-manual  type while the 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. 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 on 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. [799 G; 801C] 790      Gordon v.  Jennings, 51  L.J. Q.B.  417; Mohmedalli  v. Union of India, AIR 1964 SC 980: referred to.      (c) The  definition of  "salary" in  r.  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.  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 will partake of  the character  of salary,  the percentage  basis being  the   measure  of   the   salary.   Therefore,   such remuneration or  recompense must  fall within the expression "salary" as defined in r. 2(h). [802 A]      In the  instant case  under the term of the contract of employment the  assessee had been paying to the salesmen, in addition to  the fixed monthly salary. commission 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 determined on both  the bases  clearly partakes  of  the  character  of salary. [802 C-D]      (e) 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 assessee 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 which  did  not  partake  of  the  character  of salary. [802 F-G]      Bridge &  Roofs Co.  Ltd. v.  Union of India & Ors. AIR 1963 SC 1474 at p. 1477: held inapplicable.      2(a) The  Tribunal was  right  in  its  view  that  the provident fund  maintained by  the  assessee  satisfied  the condition laid  down in  r. 4(c)  of Part-A  of  the  Fourth Schedule. [803 G].      (b) After  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 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 Part-A of

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the Fourth  Schedule. It  was, therefore,  not open  to  the Taxing Authorities to question the recognition on the ground that the  assessee’s provident  fund  did  not  satisfy  any particular condition  mentioned in  r. 4.  For the  sake  of certainty and uniformity in administering the law the Taxing Authorities should proceed on the basis that the recognition granted and  available for  any particular  assessment  year implied that the provident fund satisfied all the conditions in that rule. Under r. 3 the Commissioner had ample power to withdraw at  any time the recognition already granted if the provident fund contravened any of the conditions required to be satisfied for its recognition. 791 But until  the Commissioner  withdrew such  recognition, the Taxing 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 uncertainty. [803 H-804 F]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 565-570 of 1978.      Appeal from  the Judgment  and Order  dated 8-2-1977 of the Calcutta High Court in Income Tax Reference Nos 398, 399 and 400/69 and 456 of 1969.      Devi Pal and D. N. Gupta for the Appellant.      S. T. Desai, B. B. Ahuja and Miss A. Subhashini for the Respondent.      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 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 sums  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 respectively  was  disallowed  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 employment ?      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 assessee  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 the class 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 rele- 792

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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  assessee company’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 contributions 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  was 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 Income-Tax,  which  recognition  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  to  the  recognised  Provident  Fund governed the  matter and  since that definition excluded all other allowances and perquisites the commission 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 deducted under s.36(1)(iv)  of the  Act. It  also took  the view that since the  Provident Fund  maintained by  the assessee was a recognised Fund  and since  it fulfilled  the condition laid

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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 of the Department.      At the  instance  of  the  Revenue  the  following  two questions were referred to the High Court for its opinion:           "(1)  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 ?"      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 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  of the Fourth Schedule to the Act where the expression  "salary"   has  been  defined  as  inclusive  of dearness allowance but exclusive of all 794 other allowances  and perquisites,  (b) Circular No. 6 dated January 16,  1941 issued  by the  Central Board  of  Revenue under the  Indian Income  Tax Act,  1922 but  which has been continued under  s.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 M/s 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 a 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 assessee 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 meaning  of "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

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recognition of  its Fund and deductibility as well. The High Court’s view  on both  the questions  is challenged  by  the assessee 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" that 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 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, 1937 stated that the commission was the monthly amount payable to the salesmen in accordance with  their written  contract and  was based on 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 Rule 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  s.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 assessee to its salesmen. Secondly, counsel contended that on a true and proper construction  of the  expression "salary occurring in the said  Rule 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.  According 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  was 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 him for his services.  the percentage basis being the measure of the

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salary; in  other words,  according to  him,  there  was  no difference 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 salary  in  Rule  2  (h)  would include such  commission. In  this behalf  he relied  upon a decision of the Allaha- 796 bad High  Court in  the case  of Raja  Ram Kumar Bhargava v. Commissioner of  Income Tax, U.P. He urged that the decision of this  Court in  M/s Bridge  & Roofs  Co. Ltd. v. Union of Indian & 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 in 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(1)(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(1)(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  the 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 payable  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 Act) 797 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  covered by  the term  ’salary’ as used 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

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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 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  Court  was right in  answering both  the questions against the assessee and in favour of the Revenue.      As stated at the outset, in our view, the main question raised in  these appeals  is whether the expression ’salary’ as defined  in Rule 2(h) of Part A of the Fourth 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.  Section  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 Provident  Funds 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." 798      Since we  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. 17 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 lays down the conditions which are required to be satisfied by a Provident Fund in order that it may receive and retain recognition and the conditions  in cls.(b)  and (c)  are material  and these conditions are:           "4(b) the contributions of an employee in any year      shall 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

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    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 account 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  intervals  not  exceeding  one      year."      It may  be stated  that  so  far  as  the  employer  is concerned  the   contributions  credited   by  him   to  the employee’s individual  account in  the funds  are deductible under s. 36(1) (iv) whereas the contributions of an employee are deductible  in the computation of his total income under s.80C read  with Rule  7 of Part A of the Fourth Schedule to the Act  and the scheme of cls.(b) and (c) of Rule 4 of Part A of  the Fourth Schedule does suggest that in the matter of deductions claim- 799 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 construction of the expression ’salary’ as occurring in Rule 2(h) of Part A of  the Fourth  Schedule; in 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  something      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  his  service  in      another  person’s  business;  also  wages,  stipend  or      annual allowance." In Stroud’s  Judicial Dictionary  (4th Edn.)  the expression ’salary’ is explained at item (2) thus:           "Where  the   engagement  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 Federal Commissioner of Taxation      v. Thompson  (J. Walter)  (Aus.) Pty.  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 connection  with services  of a higher or non-manual type  while the latter is used in connection with manual services. In Gordon v. Jennings Grover J. observed as follows: 800

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         "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 of 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 principle, there is      no difference between the two." It will  thus appear  clear that  conceptually there  is  no difference between  salary and wages both being a recompense for work done or 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

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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  "commission",  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 condition 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 commission 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." 802 It is  thus clear that 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 will  partake of  the character  of  salary,  the percentage  basis  being  the  measure  of  the  salary  and therefore such  remuneration or  recompense must fall within the expression ’salary’ as defined in Rule 2(h) of Part A of the Fourth  Schedule to  the Act. In the instant case before us, admittedly,  under their  contracts  of  employment  the assessee has  been paying  and did  pay during  the previous years  relevant   to  the  three  assessment  years  to  its salesmen,  in   addition  to   the  fixed   monthly  salary, commission at a fixed percentage of the turnover achieved by each salesman,  the rate  of percentage varying according to the class  of article  sold and  the category  to which each salesman  belonged.   The  instant  case  is  therefore,  an instance where  the remuneration  so recompense  payable for the services  rendered by  the salesmen is determined partly by reference  to the time spent in the service and partly by reference to  the volume  of work done. But it is clear that the entire  remuneration so  determined on  both  the  basis clearly partakes  of the  character of  salary. In our view, therefore, the  commission  paid  by  the  assessee  to  its salesmen would  clearly fall  within the expression ’salary’ as defined  in Rule 2(h) of Part A of the Fourth Schedule to the Act  and as  such the  three sums  of Rs.  95,421/-, Rs. 1,00,564/- and  Rs.  1,17,969/-  representing  proportionate contributions appertaining  to the  commission paid  by  the assessee to  its salesmen would be deductible under s. 36(1) (iv) of the Act.      Turning to  the Circular  dated January 16, 1941 issued by the  Central Board  of Revenue  on which  counsel for the Revenue has  relied, it  cannot, in  our  view,  affect  the question of  deductibility, for,  if the  commission paid by

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the assessee  to its  salesmen is  covered by the expression ’salary’ on  its true  construction, which, according to us, it does,  the Board’s  view or  instructions cannot  detract from the legal position arising on such proper construction. In any  case we  are of  the view  that by the said Circular what the  Board wants  to keep  out of the term ’salary’ are payments by  way of  commission which  do not partake of the character of salary. Similarly the decision of this Court in M/s. Bridge  & Roof  Co.’s case  (supra) on  which the  High Court has  relied cannot  avail the  Revenue. In  the  first place it was a case under the Provident Fund Act, 1952 where this Court  was required  to construe  the expression ’basic wages’ as  defined in  s. 2(b)  of that  Act and  to  decide whether ’production  bonus’ was  included in that expression and it was in that context that this Court made observations 803 to the  effect that  the said  expression as defined therein did not  include any  bonus,  commission  or  other  similar allowances. Secondly,  as against  the definition  of ’basic wages’  in   s.  2(b)   (ii)  which  excluded  any  dearness allowance, house rent allowance, over-time allowance, bonus, commission or  any other similar allowance, s. 6, of the Act provided  for   inclusion  of  dearness  allowance  for  the purposes of  contribution and,  therefore,  this  Court  was concerned  with  trying  to  discover  some  basis  for  the exclusion in  cl. (ii)  of s. 2(b) as also for the inclusion of dearness allowance and retaining allowance (if any) in s. 6 of  that Act  and the  Court  found  that  the  basis  for inclusion in  s. 6  and exclusion in cl. (ii) of s. 2(b) was that whatever  was payable in all concerns and was earned by all permanent  employees was  included for  the  purpose  of contribution under  s. 6 but whatever was not payable by all concerns and  was not  earned by  all employees of a concern was excluded  for the  purposes of  contribution and that is why commission  or similar allowances were excluded from the definition of  ’basic wages’,  for commission and allowances were not  necessarily to  be found  in all concerns nor were they necessarily  earned by  all the  employees of  the same concern. It  is, therefore,  clear that  the  ratio  of  the decision and  the observations  made  by  this  Court  in  a different context  in that case would be inapplicable to the facts of the present case.      Having regard  to the above discussion it is clear that the High  Court’s view  on the  first  question  is  clearly unsustainable and  that question  must be answered in favour of the assessee and against the Revenue.      Dealing next  with the  second question  it seems to us clear  that   having  regard  to  our  view  on  the  proper construction of  the expression  ’salary’ occurring  in Rule 2(h) of  Part A of the Fourth Schedule to the Act it must be held that  the  Tribunal  was  right  in  holding  that  the Provident Fund  maintained by  the  assessee  satisfied  the condition laid  down in  Rule 4(c)  of Part  A of the Fourth Schedule and  that question  also must be answered in favour of the  assessee and  against the  Revenue However, we would like to  make some  observations with  regard  to  the  true impact of  the recognition  granted by  the Commissioner  of Income-Tax to  a Provident  Fund maintained  by an assessee. The facts  in the present case that need be stressed in this behalf are  that it  was  as  far  back  as  1937  that  the Commissioner of  Income-tax had  granted recognition  to the Provident Fund maintained by the assessee under the relevant rules under 1922 Act, that such recognition had been granted after the true nature of the commission payable by the 804

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assessee to its salesmen under their contracts of employment had been  brought to the notice of the Commissioner and that said recognition had continued to remain in operation during the relevant  assessment years in question; the last fact in particular clearly  implied that  the Provident  Fund of the assessee did  satisfy all the conditions laid down in Rule 4 of Part  A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation we do not think that it  was open  to the taxing authorities to question the recognition in  any of the relevant years on the ground that the assessee’s Provident Fund did not satisfy any particular condition mentioned  in Rule  4. It  would be  conducive  to judicial discipline  and the  maintaining of  certainty  and uniformity  in   administering  the   law  that  the  taxing authorities should proceed on the basis that the recognition granted and  available for  any particular  assessment  year implies that the Provident Fund satisfies all the conditions under Rule 4 of Part A of the Fourth Schedule to the Act and not sit  in judgment over it. There is ample power conferred upon the  Commissioner under  Rule 3 of Part A of the Fourth Schedule to  withdraw at  any time  the recognition  already granted if,  in his  opinion, the Provident Fund contravenes any of  the conditions  required to  be  satisfied  for  its recognition and  if during  assessment proceedings  for  any particular assessment  year the  taxing authority finds that the Provident Fund maintained by an assessee has contravened any of  the conditions  of  recognition  he  may  refer  the question of  withdrawal of  recognition to  the Commissioner but until  the Commissioner acting under the powers reserved to him  withdraws such recognition the taxing authority must proceed on  the basis  that the Provident Fund has satisfied all the  requisite conditions  for its  recognition for that year; any  other course  is bound  to result  in  chaos  and uncertainty which has to be avoided.      Having  regard   to  the  above  discussion,  both  the questions are accordingly answered in favour of the assessee and the appeals are allowed with costs. P.B.R.                                       Appeal allowed. 805