1. By this application, M. K. Kirtikar, the assessee, requires the Appellate Tribunal to refer to the High Court some four questions of law, which are said to arise out of the Tribunal's order in I. T. A. No. 5713 of 1951-52. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order we hereby draw up a statement of the case agreed to by the parties and refer it to the High Court of Judicature at Bombay under section 66(1) of the Indian Income-tax Act. The assessee's representative wants us to make the reference application and the Commissioner's reply thereto a part of the case which we see no reason to do. Total
2. The assessee was an employee of Dadajee Dhackjee & Co., Bombay, at the relevant time, In S. Y. 2000 (30th October, 1943, 17th October, 1944) he was paid by Dadajee Dhackjee & Co., (hereinafter referred to as the firm) commission at the rate of 1 per cent of its turnover in its colour department. As a matter of fact, three employees were paid commission at the rate of 3 per cent of the turnover. The total commission paid to these three employees amount to Rs. 84,540. The Income-tax Officer assessing the firm in respect of its profits of S. Y. 2000 disallowed a sum including Kirtikar. The business of the firm was taken over as a going concern with its assets and liabilities by a private limited company called Dadajee Dhackjee & Co. Ltd. with effect from the first day of S. Y. 2001. Under section 25(4) of the Act after computing the income of the firm the Income-tax Officer held that tax was not payable. A copy of the Income-tax Officer's order dated 30th August, 1948, in respect of the assessment of the firm for the year 1945-46 is annexure 'A' and forms part of the case.
3. The assessee for the year ended 31st March, 1945, returned an income of Rs. 44,068, which included Rs. 43,360 on account of salary and commission received from the firm. The assessee claimed a refund by his letter dated 19th March, 1949, on the ground that a part of the commission paid to him by the firm was disallowed in assessing the firm. A copy of letter dated 19th March, 1949, is annexure 'B' and forms part of the case. The claim of the assessee was disallowed by the Income-tax authorities. The assessee thereupon appealed to the Appellate Tribunal but the Tribunal rejected the claim for the reasons recorded by it in its order, a copy of which is annexure 'C' and forms part of the case. The Finance Department Notification No. 878-F., dated 21st March, 1922, relied upon by the assessee reads as follows :-
'The following classes of income shall be exempt from the tax payable under the said Act, but shall taken into account in determining the total income of an assessee for the purposes of the said Act :-
(1) Sums received by an assessee on account of salary, bonus, commission or other remuneration for services rendered, or in lieu of interest on money advanced, to a person for the purposes of his business,
where such have been paid out of, or determined with reference to, the profits of such business,
and by reason of such mode of payment or determination, have not been allowed as a deduction but have been included in the profits of the business on which income-tax has been assessed and charged under the head 'business' :
Provided that such sums shall not be exempt from the payment of super tax unless they are paid to the assessee by a person other than a company and have already been assessed to super-tax.'
4. The question of law that, therefore, arises is;
'Whether the assessee is entitled to the relief granted by the notification referred to above'
when we turn to the assessment order, there is no doubt that there has been an assessment of the total income at Rs. 4,11,084, and in this assessment Rs. 56,360 is included as income which should bear tax. Once the assessment is made, the income becomes liable to pay income-tax under section 3, according to the provisions of the Income-tax Act. As to what the actual amount of tax is is a mere matter of arithmetical computation. The rate is laid down in the Finance Act and the rate is to be applied to the total income. It is difficult to understand how this position is altered by the fact that the assessee got exemption under section 25(4). In its very nature an exemption can only be claimed provided there is a liability to pay tax. It is only when an income is charged to tax under the provisions of the Act that the question arises whether under any other provisions of the Act the income is liable to be exempted from payment of the tax, and therefore the mere fact that exemption was granted to the assessee does not mean that the income is respect of which exemption was granted was not assessed or charged to tax.
5. There is another aspect of the matter which may be considered. The very basis of section 25(4) is that the assessee paid tax twice when the new Income-tax Act was introduced in 1919 and the exemption he gets is on the basis that he is deemed to have paid tax for this year in the past. Therefore, in the eye of the law although he gets exemption he has paid tax on the whole of his income and therefore the law does not levy double tax upon his income. But it is difficult to understand why the assessee is not entitled to the relief under the notification because his employer by reason of certain circumstances gets exemption from payment of tax which has been assessed and which has been charged. The only ground that the Tribunal has in its judgment given for accepting the contention of the department is that the assessee was not assessable to tax by reason of section 25(4). That, with respect, is a clearly erroneous view of the matter. The assessee was not bound to make an application under section 25(4). He might not have made an application in which case the position would have remained the same except that the department would have proceeded to the next stage, that of levying the tax, but because he did apply under section 25(4) and the application was granted the department stopped at the second stage of charging and did not proceed to levy the tax or compel the assessee to pay the tax. In out opinion the case of the assessee falls within the ambit of the notification.
6. The result is that the answer to the question submitted to us must be in the affirmative. The Commissioner to pay the costs.
7. Question answered in the affirmative