S.T. Desai, J.
1. This Reference raises a question of some importance and interest relating to the meaning and import of the expression 'commission' in Section 10(4)(b) of the Income-tax Act. The Reference came up for hearing before Mr. Justice Tendolkar and myself on September 19, 1957, and as we felt that the Tribunal had not applied its mind to one aspect of the case and dealt with the question whether the rebate in question had been paid for commercial consideration, we directed that it should submit a Supplementary Statement of the case setting out the facts on which it had reached its conclusion. The material facts may be briefly stated. The assessee is a partnership firm and runs a cotton pressing factory at Kosamba in Surat District. Four of its five partners ar,e Co-operative Societies. The two assessment years are 1953-54 and 1954-55. During the relevant accounting years, the assessee-firm pressed no cotton for any one except four of its partners and no bales were pressed on behalf of the fifth partner during either of those two years. It appears that to protect the interest of the cotton dealers in the area there exists an association, namely, the Surat District Cotton Dealers' Association, which has a voice in the matter of fixation of pressing charges and does so with a view to regulating the charges to be made by owners of cotton presses. For the two seasons under consideration, the rates fixed at Kosamba were Rs. 12-8-0 and Rs. 13 per bale. A good deal of argument has been presented because of a very peculiar method of keeping accounts maintained by the firm. That method is a hybrid one and requires to be stated in some detail. It may be mentioned that the correctness or bona fides of the system of accounts or what has been done by the partners has not been challenged by the Revenue. It will be convenient to explain that method of book-keeping by an illustration. In Samvat Year 2008 (assessment year 1953-54) one of the partners Motiram Raghavji got pressed in all 1789 bales. In an anamat account of the partners-and not the 'Pressing Bandhiyari Account' of the firm-Motiram Raghavji was charged for pressing his bales at the rate of Rs. 12-8-0 and the whole amount of Rs. 22,362-8-0 at the rate of Rs. 12-8-0 per bale for 1789 bales was credited to that anamat account. At the end of the year that account was debited with Rs. 22,362-8-0 and corresponding entries were made in the 'Pressing Bandhiyari Account' as follows:
(a) Rs. 19,679 at Rs. 11 per bale for 1789 bales credited to the account called 'Pressing Bandhiyari Khata',
(b) Rs. 2,683-8-0 at Re. 1-8-0 per bale for 1789 bales credited to 'advance account' for the benefit of Motiram Raghavji.
It is of some consequence to notice that for the first time an entry relating' to the pressing charges of these bales appears in the Pressing Bandhiyari Account at the end of the year, and that entry shows that the pressing charges received from Motiram Raghavji were in effect Rs. 19,679 because rebate was given at Re. 1-8-0 per bale and the rebate amounted to Rs. 2,683-8-0. It is not necessary to discuss what an anamat account can be. The real account obviously can be the 'Pressing Bandhiyari Account' and when we look at that account, it clearly shows that the charges in the illustrative case amounted to Rs. 19,679 and Rs. 2,683-8-0 was the rebate or discount given to Motiram. The position as regards the other partners in both the years is similar in the books of account maintained by the assessee-firm. The amount of rebate aggregated in the first year to Rs. 11,575 in respect of the four partners and was taken to the 'Upaja Kharch account', i.e. Income & Expenditure Account. The amount of rebates, which were ultimately entered in the 'Advance Account' in respect of all the partners aggregated to Rs. 9,689 in the first year and Rs. 40,388 in the second year. The rebates were calculated at Re. 1-8-0 per bale in the first year and Rs. 3-6-0 per bale in the second year. It was some time towards the end of the year that the partners passed a resolution agreeing to give rebate to persons, who got their bales pressed and the rebates were at the rate of Re. 1-8-0 and Rs. 3-6-0 per bale respectively and it is these amounts of Rs. 9,689 and Rs. 40,388 which formed the subject-matter of dispute between the Revenue and the assessee-firm and it is these sums which are the subject-matter of this Reference.
2. On these facts, the Income-tax Officer decided that the two amounts of Rs. 9,689 and Rs. 40,388 were part of pressing charges earned by the firm and had to be brought into computation of profits under Section 10. The Appellate Assistant Commissioner confirmed that decision on the ground that the payments were nothing else than sharing of profits simpliciter. Before the Tribunal two contentions were urged on behalf of the Revenue. One contention was that what was done by the partners was merely appropriation of profits. That contention was discountenanced by the Tribunal. The other contention was that the sums in dispute were not admissible deductions under Section 10(2)(xv) and in any event they Ml within the purview of Section 10(4)(b) and, therefore, were liable to tax. The Tribunal was somewhat vague in its decision on the second contention so far as it fell to be considered under Section 10(2)(xv). It was, however, of the opinion that the two amounts could be considered as 'commission' and, therefore, within the ambit of Section 10(4)(b). Section 10(2)(xv) is as under:-
10.(2) Such profits or gains shall be computed after making the following allowances, namely:-...
(xv) any expenditure not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.
Section 10(4)(b) is as under:-
10. (4) Nothing in clause (ix) or clause (xv) of Sub-section (2) shall be deemed to authorise the allowance of any sum paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains; and nothing in clause (xv) of Sub-section (2) shall be deemed to authorise-
(b) any allowance in respect of any payment by way of interest, salary, commission or remuneration made by a firm to any partner of the firm;
The Tribunal reached the conclusion that the assessoe-firm was not entitled to claim deduction of the two sums for the two years to which the assessment related. The following are the questions submitted by the Tribunal:-
1. 'Whether the sum of Rs. 9,689 - Rs. 40,388 representing rebate granted to four out of five partners of the assessee firm is, an admissible deduction in computing the profits for the assessment year 1953-54/1954-55 having regard to the provisions of Section 10(2)(xv) read with Section 10(4)(b) of the Indian Income-tax Act, 1922?
2. Whether the amount of Rs. 9,689 - Rs. 40,388 can at all fall under Section 10(2)(xv) particularly because it is paid out of income already earned and is not paid in order to earn it?
3. When the Reference came up before Mr. Justice Tendolkar and myself, we felt that a Supplemental' Statement of the Case was necessary. That was not in respect of the argument relating to the applicability of Section 10(4)(b) but to the argument relating to Section 10(2)(xv). Obviously, if the rebate did not fall within Section 10(2)(xv), it was unnecessary to determine whether the right to the allowance as a business expense was under Section 10(4)(b). The first question raised on the Reference at the instance of the assessee was whether certain rebate granted to four out of five partners of the assessee-firm was an admissible deduction in computing the profits of the assessee having regard to the provisions of Section 10(2)(xv) read with Section 10(4)(b) of the Indian Income-tax Act. The second question raised at the instance of the Income-tax Commissioner appeared to us to be in two parts: the first part involving an argument that the rebate was a distribution of income already earned, and, therefore, did not fall within Section 10(2)(xv), and the second part involving the argument that the rebate was not paid in order to earn income, in other words, the rebate was not paid for any commercial purposes or on the ground of commercial expediency and could not, therefore, be an allowable expense under Section 10(2)(xv). The facts with regard to the first part were sufficient to enable us to determine that question:, but with regard to the latter part of the question we were of the view that the matter should be remanded to the Tribunal. We were informed that the assessee had led evidence to show that there was a practice in the locality to give such rebate and the rebate had to be given to keep up business. There was mention in the order of the Assistant Appellate Commissioner to such evidence. The Appellate Assistant Commissioner had expressed the view that the general practice had not been established but there was nothing in the order of the Tribunal of the nature of a finding on that point by the Tribunal.
4. The Supplemental Statement of the Case, which is now before us, shows what the material was on which the Tribunal had reached the conclusion that such rebate was an admissible deduction under Section 10(2)(xv). In that Statement of the Case it is stated by the learned Members that their powers in, the matter were restricted by the directions given by us and they could only point out the material on which the Tribunal appeared to have held that the rebates in question were admissible deductions under Section 10(2)(xv). The learned Members, who have submitted the case, were not the Members, who constituted the Tribunal which decided the appeal. They have, however, added:
In the interest of justice we would have admitted the fresh evidence particularly as the two members now furnishing this statement under Section 66(4) were not parties to the order under Section 33(4) and therefore cannot categorically state beyond what is found on the record as to the material on which the Tribunal gave its finding that the impugned rebates constituted admissible deductions under Section 10(2)(xv) of the Act.
They have also stated that the Tribunal had relied upon its own experience of such cases and had no doubt that it was the normal practice to give such rebates.
5. It has been argued before us by Mr. G. N. Joshi, learned Counsel for the Revenue, that although there is a finding that there was a normal practice of giving rebates, that practice did not embrace partners in a firm. There is, in our opinion, little substance in this argument. A general practice of the nature before us found by the Tribunal can touch partners as well as any outside customer of a pressing factory. Mr. Joshi has taken us through certain facts on which the Tribunal had reached its conclusion in the matter of the general practice and that for the purpose of showing that the rebates could not be paid to a customer-partner on the ground of commercial expediency. It would be travelling beyond our advisory jurisdiction if we were to sit in appeal over the findings of fact recorded in the judgment of the Tribunal. Therefore, the answer to the second question must be in the affirmative, as, in our opinion, the two amounts of Rs. 9,689 and Rs. 40,388 can fall under Section 10(2)(xv). We agree with the Tribunal that it cannot be said that the amounts were paid out of income already earned or out of profits. The two items fall under the heading of 'commercial expediency' and are, therefore, within the ambit of Section 10(2)(xv).
6. The crucial question before us, however, is whether the Tribunal was right in the conclusion reached by it that these rebates are covered by the rule laid down in Section 10(4)(6). Clause (6) of Sub-section (4) of Section 10 prohibits any allowance in respect of any payment by way of interest, salary, commission or remuneration made by a firm to any of its partners. The prohibition is absolute and makes no distinction between payments made to a partner as such and payments made to him in a different character, as for example, as the owner of an independent business. That position has been accepted before us on both the sides. The question before us, therefore, lies in a narrow compass and is whether rebates of the nature before us are hit by the prohibition imposed bycl. (b) of Sub-section (4) of Section 10. It has been strenuously urged before us by learned Counsel for the Revenue that by calling a disputed item 'rebate' it does not become rebate and that the nature and character of the payment must be a vital consideration. So far we are in agreement with Mr. Joshi. Of course, the Court will look at the substance of the matter and not merely the nomenclature that an assessee may choose to apply to any payment or expenditure. Then, says Mr. Joshi, a rebate can only be given before payment is made by the customer. He also says that a rebate should be for every bill and can never be collective. There can be a rebate in case of pressing charges if a bill is given before the work is done and payment is made and the person paying knows that he will get the rebate before he makes the payment. We are unable to accede to this broad proposition. No doubt in many cases rebates would be paid when bills are cleared, but there is no principle nor authority for the proposition that no rebate can be made after a number of bills are given to a party or after payments have been made in respect of those bills. There is nothing objectionable, if a merchant, who has had large dealings with another merchant, agrees bona fide as a matter of commercial expediency to give rebate to the other party in respect of transactions, which have already been executed. In case of what is described as rebates, if given in circumstances which raise real doubt there can he nothing to prevent the
Income-tax Officer or the Appellate Assistant Commissioner from holding that the rebates given are not established in fact or that the rebates are not genuine or bona fide. But that would be on totally different considerations. In the instant case, we are dealing with rebates, the genuineness and bona fides of which has not been questioned by the Department.
7. It has also been urged before us by Mr. Joshi that the Tribunal has rightly held that the amounts could he considered as 'commission' for work secured by a partner for the firm. It will be convenient to set out the material part of the order of the Tribunal, which, in our opinion, records the requisite findings of fact. It is as under:
The point is whether when such a rebate is granted to a partner, it continues to be an admissible deduction under Section 10(2)(xv) notwithstanding the provisions of Section 10(4)(b). That section specifically provides that nothing in clause 10(2)(xv) shall be deemed to authorise 'any allowance in respect of any payment by way of... commission ...made by a firm to any partner of the firm'. It has been already stated that the cotton pressed by the four partners in the firm's factory does not exclusively belong to them, they got pressing work done for and on behalf of their constituents. Larger the number of bales got pressed by a partner, larger would be the amount payable to him by the firm and naturally, the largeness of the number of bales depends upon the extent of his constituents. Therefore, the amount given to him by way of reduction in pressing charges rate can be considered as commission for the work secured by him for the firm....
It is clear from this part of the order of the Tribunal that the two amounts were held to be rebates granted to a partner. The Tribunal has also found in express terms the fact that the rebates were amounts given to a partner by way of reduction in pressing charges.
8. It all comes to this. Can a rebate granted by a firm of cotton pressers to a customer-partner by way of reduction in pressing charges amount to 'commission' within the meaning of Section 10(4)(b) The expression 'commission' has no technical meaning but both in legal and commercial acceptation of the term it has definite signification and is understood as an allowance for service or labour in discharging certain duties such for instance of an agent, factor, broker or any other person who manages the affairs or undertakes to do some work or renders some service to another. Mostly it is a percentage on price or value or upon the amount of money involved in any transaction of sale or service or the quantum of work involved in a transaction. It can. be for a variety of services and is of the nature of recompense or reward for such services. Rebate, on the other hand, is a remission or a payment back and of the nature of a deduction from the gross amount. It is sometimes spoken of as a discount or a draw-back. The dictionary meaning of the term includes a refund to the purchaser of a thing or commodity of a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment hut may be handed hack to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can he made later and in case of persons who have continuous dealings with one another it is nothing unusual to do so. In the case before us, we are concerned with charges for pressing bales of cotton by a cotton presser to a constituent who is also a partner and repayment to him of a part of those charges as a rebate and as now found by the Tribunal on grounds of commercial expediency. In our judgment, those deductions are nothing more than rebate which can be given in case of a sale or any other transaction of the nature before us. One practicable test, which may perhaps apply to a like transaction, can be this. If the amounts in dispute were commission, they would certainly he income of the constituent partners. It seems extremely difficult to us to view these pavments received by the constituent partners as income earned by them. The correct position seems to us to be that the disputed amounts touch and directly touch the amount of charges payable for pressing cotton hales and cannot be regarded as anything apart from those pressing charges. They are rebates in both the legal and commercial signification of that expression and cannot be treated as 'commission'. For all these reasons we are of the opinion that the disputed amounts are not hit by the provisions of Section 10(4)(b).
9. Our answer to the first question will be in the affirmative. 'We have already answered the second question. The Commissioner to pay the costs of the assessee-firm. There will be no order on the notice of motion.