1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee. The assessee has been assessed in the status of an individual. We are here concerned without the assessment year 1956-57, the relevant previous year being the financial years ending 31st March, 1956. The assessee derived income from various sources including salary for the services rendered by him to the Sanghi Brothers, Indore, a private limited company, and business. The first questions relates to certain special allowance received by the assessee from the Sanghi Bros. in the year of account, in accordance with the resolution dated October 10, 1951, of the board of directors of Sanghi Bros. Limited, and the second question relates to a sum of Rs. 29,500 received by the assessee under an agreement of April 21, 1956, from Shri Jagannath Dhand. It would be convenient to state the facts relating to each question separately.
2. Now, the resolution of the board of directors of Sanghi Bros. Limited of 10th October, 1951, is in the following terms :
'Resolved that Mr. S.G. Sanghi, the managing directors, be paid a special allowance of Rs. 700 (rupees seven hundred only) per month for the paying commission for securing business for the firm, with the effect from the 1st April, 1951, debiting the same to commission account.'
3. In accordance with this resolution, in the year of account the assessee received a sum of Rs. 8,400. The assessee claimed that the said account of the Rs. 8,400 was not taxable, inasmuch as it was not his income. It is an amount received by the assessee for a specific purpose, viz., for paying commission for securing business for the company. The Income-tax Officer called upon the assessee to prove the extent to which the sum of Rs. 8,400 had been actually spent by him for the purpose of the company. The assessee only stated that he had expended the amount but did not produce any proof in support of his statement that he had actually spent the said amount or any part thereof. In the circumstances, the Income-tax Officer has included the amount of Rs. 8,400 in the total income of the assessee and has brought it to tax. The claim of the assessee for exclusion of this amount from his total income has failed both before the Appellate Assistant Commissioner as well as before the Tribunal. On an application made by the assessee under section 66(1) of the Income-tax Act, a the Tribunal, after stating the case, has referred to his the following question on this aspect of the case :
'Whether, on the facts and circumstances of the case, the special allowance of Rs. 8,400 received by the assessee from Messrs. Sanghi Bros. Pvt. Ltd. is taxable in the hands of the assessee as salary income ?'
4. Mr. Mehta, learned counsel for the assessee, has reiterated the same contention of the assessee before us. In support of his contention, he has referred us to certain observations of the Madhya Pradesh High Court in the dealing with the reference arising out of the assessment of Sanghi Bros. for the said assessment year. According to Mr. Mehta, the Tribunal was in error in including the said amount of Rs. 8,400 in the total income of the assessee. We find it difficult to accept the contention of Mr. Mehta. Total income has been defined in sub-section (15) of section 2 of the Income-tax Act as 'total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act.' The preamble to section 4 (1) provides : 'Subject tot he provisions of this Act, the total income of any previous source derived.' The sources are enumerated in section in section 6 and salary is one of the heads of income. Sub-section (3) of section 4 provides for exclusion of income, profits or gains falling within the clauses enumerated in its sub-clauses (i) to (xxii). Sub-clause (vi) relates to a special allowance received by an employee. Material part of sub-section (3) is in the following terms :
'Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them :...........
(vi) Any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within he meaning of sub-section (1) of section 7, specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose.'
5. Reading together the preamble of sub-section (1) of section 4 and the aforesaid relevant provision of section 4(3)(vi) it becomes clear that the said allowance specially granted to an employee to meet the expenses wholly and necessarily incurred by him in the performance of his duty as an employee would be his income unless he established that the special allowance received by him specially to meet the expenses wholly and necessarily incurred by him in the permanence of his duty as an employee would be his income unless he established that the special allowance received by him specifically to meet the expenses has been expended by him and expenses had been actually incurred by him for the specified purpose. In other words, the special allowances received by an employee from his employer for the purpose of meeting an expenses would be in the nature of the his income till he actually expends the amount received by him on the specified purpose. If the employee expends the amount in incurring the expenses on the purpose for which the amount has been entrusted to him, then by reason of his so incurring the expenditure the amount received by the him ceases to be his income or galls out of his income. Till that time the special allowance received by him retains the character of his income.
6. Now, the resolution under which the assessee has received an amount of Rs. 8,400 in express terms mentions it as a special allowance and the specific purpose for which this special allowance has been given is for paying commission for securing business for the firm. On the terms of the resolution, the amount for securing business for the firm. On the terms of the resolution, the amount of Rs. 8,400 received by the assesse would be 'special allowance' within the meaning of clause (vi) of sub-section (3) of the section 4, specifically granted to the assesse who was an employee of Sanghi Bros. to meet expenses in the course of his employment in the performance of his duty of securing business for his employer, viz., Sanghi Bros. It would, therfore, be receipt in the hands of the assesse and unless he established that the entire amount had been expended by him in incurring expenses by him on the purpose for which the amount had been paid to him. In the event he fails to do so, the combined effect of these provisions would be that it would be included in this total income. The Incomes-tax officer called upon the assessee to prove the extent to which the said amount of Rs. 8,400 was actually spend by him for the purpose for which he received the amount of Rs. 8,400 was actually spend by him for the purpose for which he received the amount of special allowance. The assessee rendered no proof or evidence in support of his bald statement, 'This sum is spend by the managing director'. This being the position, in our opinion, the income-tax authorities as well as the Tribunal were justified in including the said amount of Rs. 8,400 in the total income of the assesse.
7. The decision of the Madhya Pradesh High Court to which our attention was drawn by Mr. Mehta, in our opinion, has no relevance to the question which we have to consider there. The observation on which Mr. Mehta has placed reliance were made by the Madhya Pradesh High Court, in a reference arising out of the assessment of the employer of the assessee, Messrs. Sanghi Brothers Limited, Indore. Sanghi Brothers had claimed the said amount of Rs. 8,400 paid to the assessee as a permissible deduction under section 10(2)(xv). The Tribunal had not allowed this claim of Sanghi Brothers. At the instance of Sanghi Brothers a reference was made to the High Court raising a question as to its permissibility. In dealing with this question, the learned judges observed :
'In our view, the deduction claimed by the assesse must be allowed. The payment of Rs. 700 per month to Shri Sanghi (assessee before us) was clearly not by way of bonus or commission in appreciation of the services rendered by him or for increasing his own personal efficiency. As the resolution passed by the board of directors itself indicates, the payment was made to Shri Sanghi for paying out commissions to other persons for securing business for the firm.'
8. In this view of the matter, the learned judges held that the expenditure of the said amount of Rs. 8,400 by Sanghi was an allowable deduction. Mr. Mehta laying emphasis on the sentences 'the payment was made to Shri Sanghi for paying commission to other persons for securing business for the firm' argued that here is the finding of the High Court holding that the amount had been expended for paying out commission to other person for securing business for his employer, Sanghi Brothers. We find it difficult to read anything in the observations that there is any finding given by the High Court that Shri Sanghi, assessee before us, has, in fact, extended the amount received by him. All that has been said is that Sanghi Brothers had paid this amount to Shri Sanghi for the purposes of paying out commission to secure business for them. The expenditure incurred by the assessee, therefore, was laid out wholly and exclusively for the purpose of the said business. But as we have pointed out the purpose for which the employer pays an amount to his employee is not sufficient to entitled the employee to claim a deduction of the said amount, in the absence of any proof tendered by him that he had in fact expended the allowance on the purpose for which it had been paid to him. For these reasons, in our opinion, the first question will have to be answered against the assessee.
9. In the result, our answer to the first question is in the affirmative.
10. Mr. Mehta has not pressed the second question. It is, therefore, not necessary to answer the second opinion.
11. In the circumstances, the assessee shall pay the costs of the Commissioner.