1. The assessee was an employee of Dadajee Dhackjee & Co. in the assessment year 1945-46, the previous year being Samvat Year 2000, from 30-10-1943 to 1/-10-1944, and in this year of account he received from his employers commission at the rate of 1 per cent on the turnover of the Company in its colour department. Apart from the assessee two other employees also received similar commission and the total commission came to Rs. 84,540/-.
Dadajee Dhackjee & Co. were assessed to tax in the assessment year 1945-46 and in the assessment order out of Rs. 84,540/- paid as commission to its employees by the company Rs. 56,360/- was disallowed. The total income of the company was assessed at Rs. 4,11,084/-. In other words, as the assessment order stood, Dadajee Dhackjee & Co. was charged to tax in respect of Rs. 56,360/- although it had paid that amount as commission, because that was not considered as a permissible deduction.
The assessee therefore in his own assessment claimed exemption from tax on Rs. 18,787/-, which represented his one-third share of Rs. 58,360/-, and he made this claim on the oasis of the notification issued by the Finance Department on 21-3-1952.
That notification exempts from tax 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 business, provided two conditions are satisfied, and the two conditions are that the sums are paid out of the profits of such business and the profits of the business have been assessed and charged to income-tax.
2. Dadajee Dhackjee & Co. was taken over as a going concern with its assets and liabilities by Messrs. Dadajee Dhackjee & Co. Ltd. in the beginning of Samvat Year 2001 and the assessee company made an application for exemption from tax under Section 25(4) and the exemption was granted by the Income-tax Officer. The result was that the assessee company did not pay any tax on its total income which was assessed at Rs. 4,11,084/-.
It was, therefore, contended by the department that inasmuch as no tax was paid on the sum of Rs. 56,360/-, the assessee was liable to pay tax on his one-third share of Rs. 18,787/-, he was not entitled to exemption and he did not come within the ambit of the Finance Department notification. What was alleged was that the principle underlying the notification was that if the employer paid tax on commission paid to the employee then the employee should not be taxed.
In other words, tax should not be paid twice on the same commission, but as in this case the employer did not pay any tax on the commission received by the employee, viz., Rs. 13,787/-, the employee was liable to tax. This contention was accepted by the Tribunal and the assessee has come on this reference.
(2a) The Advocate-General has argued that both the conditions laid down in the Finance Department notification are not satisfied. He points out that the. commission was paid on the turnover of the employer company and not out of profits. That is clearly an untenable contention. The mode of computation of the commission of the assessee was undoubtedly 1 per cent of the turnover.
What the Finance Department notification requires is that the source out of which this commission is paid is the profit of the employer and there is no finding before us that in fact this commission was not paid out of the profits, one has only to look at the assessment order to be satisfied that this commission in fact was paid out of the profits.
As we pointed out the total income under the business head by the assessee is Rs. 4,11,084/-. The second contention urged by the Advocate-General is that although the income-tax may have been assessed it was not charged and therefore the assessee is not entitled to the exemption. Now, what is the meaning of the expression 'charged'? Section 3, Income-tax Act is the charging section, and a charging section in a fiscal statute means that by that section the subject becomes liable to pay tax referred to in that section.
The liability to pay tax can only arise if the income or profits of the subject are charged to tax under the relevant provisions of the law. But the contention of the Advocate-General is that 'charged' means levying tax, and as in this case there was no levy of tax, the Advocate-General says that the condition of the notification is not satisfied.
3. Really there are four processes recognised by the Income-tax Act. First there is assessment which, as the Privy Council pointed out, is an equivocal expression, but for the purposes of this argument it can be looked upon as the mode of computation. Then we have the charge which is the liability to pay tax under Section 3. Then comes the levy which is the procedure laid down for the realisation of the tax, and finally comes the actual payment of the tax.
These distinctions are clearly brought out in the section on which the Advocate-General himself relies, which is Section 55. That is a section dealing with super-tax, which lays down that in addition to the income-tax, charged for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year super-tax as mentioned in that section. Therefore, in this section a clear distinction is drawn between charging, levying and paying.
If that be the true position, 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 a mere matter of arithmetical computation. The rate is laid down in the Finance Act and the rate 13 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 in respect of which exemption was granted was not assessed or charged to tax.
4. 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 1939 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 in application under Section 25(4). He might not nave 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 our opinion the case of the assessee falls within the ambit of the notification.
5. The result is that the answer to the question submitted to us must be in the affirmative. The Commissioner to pay the costs.
6. Answer in the affirmative.