I.T.A. NO.2721/KB OF 1992-93 VS I.T.A. NO.2721/KB OF 1992-93
2001 P T D (Trib.) 1794
[Income-tax Appellate Tribunal Pakistan]
Before S. M. Sibtain, Accountant Member and
S. Nasan Imam, Judicial Member.
I.T.A. No.2721/KB of 1992-93, decided on 26/04/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.16---Salary income---Determination---Condition precedent to the classification of the income under S.16 of the Income Tax Ordinance, 1979 was that the payer and the payee had the relationship of the "employer" and the "employee".
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.16, 30 & 31(l)(b)---Salary income---Income from other sources-- Assessee received commission from his employer in addition to his monthly salary and claimed expenditure /exemption 30% of such commission under S.31(1)(b) of the Income Tax Ordinance, 1979 being commission income chargeable under S.30 of the Income Tax Ordinance, 1979---Validity-- Assessee received commission from his employer in addition to his salary, which was assessable under.S.16(2)(a)(iii) of the Income Tax Ordinance, 1979 and there was no provision under S.16 of the Ordinance to allow any deduction on account of any expenditure incurred to such commission-- Commission was not assessable under S.30 of the Income Tax Ordinance, 1979----Expenditure disallowed by the Assessing Officer in respect of such commission was upheld by the Appellate Tribunal in circumstances.
I.T.A. No. 1834/KB of 1984-85 ref.
Bakht Zaman, D.R. for Appellant.
Zulfiqar Ali Hussaini, F.C.A. for Respondent.
Date of hearing: 26th April, 2000,
ORDER
S. M. SIBTAIN (ACCOUNTANT MEMBER). ---Objection is taken in this appeal on behalf of the Department against the order of the learned C.I.T.(A) for directing to allow expenses claimed by the respondent Q 30% of the commission received by him from his employer in addition to his monthly salary.
2We have heard the learned D.R. as well as the respondent.
3. Briefly, the facts are that the respondent is an employer of Greaves Cotton Pakistan (Pvt.) Ltd. He receives from his employer, in addition to his salary, commission on the amount of business secured by him. He has been claiming exemption on commission income to such extent in the preceding years which has been allowed.
4. In the instant year too he has claimed such exemption amounting to Rs.1,50,585 Q 30% of commission received amounting to Rs.5,01,950 in addition to salary amounting to Rs.1,61,700. The learned. Assessing Officer has asked the respondent to indicate the provision of law under which the exemption is claimed.
5. The respondent, has submitted before him that other employees of the Sales Division are also paid similar commission in addition to their salaries. According to the respondent, he has to devote extra time and to incur certain expenses from his pocket to earn such commission; hence the claim. Further, he has placed reliance on the decision of the Tribunal in I.T.A. No. 1834/KB of 1984-85 in support of his claim.
6. The learned Assessing Officer, on the facts and in the circumstances supra, has found that there is no basis either for claiming the exemption or for claiming the expenditure under, the law. He, therefore, has disallowed the claim.
7. The learned C.I.T.(A) on the facts and in the circumstances supra, however, has found:
"I agree with the contentions of the learned A.R. for the appellant. The impugned disallowance was made by the Assessing Officer only on the basis of innuendes and insinuations, which were not backed by any material or basis. Since the nature of appellant's receipts had not undergone any change, there was no justification for deviation from the previous history of the case. The amounts of expenses claimed by the appellant were also reasonable and in accordance with the previous history of the case. I, therefore, do not find any justification for the Assessing Officer's action. The impugned disallowance is accordingly knocked off."
8. The learned representative of the Department has submitted that neither the claims of exemption have been examined in the past nor the nature of commission income of the respondent has been considered properly. Regarding the decision of the Tribunal cited supra, he has submitted that the year and the date of the decision is not given; hence it cannot be traced. Nevertheless, he submits that either it pertains to the case of an insurance agent who does not receive any salary from the Insurance company in addition to the commission or it is per incurium.
9. The respondent on the other hand, besides reiterating his submissions made before the two forums below, has added that the commission received by him is chargeable under section 30 of the Income Tax Ordinance and the expenditure claimed by him is allowable under section 31(1)(b) of the Ordinance.
10. Having given our careful consideration to the facts and circumstances of the case supra, we have no hesitation firstly to hold that there is no provision under the Income Tax Law for exemption from tax to any percentage of commission received by an assessee.
11. Further, in our view the core issue on which the decision in the instant case depends is the nature of commission received by the respondent. We, therefore, shall endeavour to identify the particular head out of the six different heads under which all income, for the purposes of charge of tax and the computation of total income are to be classified in accordance with the provisions of section 15 of the Income Tax Ordinance, 1979.
12. The first such head of income under section 15 is salary. According to subsections (1) and (2) of section 16:
"(1)The following income shall be chargeable under the head 'Salary',namely:---
(a)any salary due to the assessee from an employer in the income year, whether paid or not; and
(b)any salary (including arrears (or advances) of salary) paid to the assessee in the income year by an employer.
(2)For the purposes of subsection (1),---
(a)'Salary' includes--
(i)any wages;
(ii)any annuity, pension or gratuity;
(iii)any fees, commissions, allowances, perquisites or profits in lieu of,or in addition to, salary or wages;"
13. The next two heads of income enumerated under section 15 are (b) "interest on securities" and (c) "income from house property" which obviously are not relevant to our pursuit.
14. The next head is (d) "income from business or profession" chargeable under section 22 of the Ordinance the provisions whereof are reproduced hereunder:
"22. Income from business or profession.---The following incomes shall be chargeable under the head 'Income from business or provision', namely:,--.
(a)profits and gains of any business or profession carried on or deemed to be carried on, by the assessee at any time during the income year;
(b)income derived by any trade, professional and similar associationfrom specific services performed for its members; and
(c)value of any benefit or perquisites whether convertible into money or not, arising from business or the exercise of a profession.
Explanation. ---Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as 'speculation business') shall be deemed to be distinct and separate from any other business carried on by the assessee."
15. The next head of income under section 15 is (e) "Capital gains" which too is not relevant in the present context. The sixth and the last head under which an income may be classified is, (t) "income from other sources" which is chargeable under section 30. We, therefore, shall reproduce the provision of section 30, as well, hereunder:
"30. Income from other sources.---(1) Income of every kind which' may be included in the total income of an assessee under this Ordinance shall be chargeable under the head 'Income from other sources', if it is not included in his total income under any other head.
(2)In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes shall, save as otherwise provided in this Ordinance, be chargeable under the head 'Income from other sources', namely:---
(a)dividend;
(b)interest, royalties and fees for technical services;
(c)ground rent;
(d)income from the hire of machinery, plant or furniture belonging to the assessee and also of buildings belonging to him if the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture; and
(e)any income to which subsection (12) of section .12 or section 13 applies. "
16. It transpires on perusal of the provisions of sections 16, 22 and 30 supra that the term "commission", as such, has been used only in sub clause (iii) of clause (a) of subsection (16) (supra). On a more careful perusal of the sub-clause (iii) (supra) it further transpires that the term 'salary' includes any fees, commission, allowances, perquisites or even profits if these are in lieu of, or in addition to, salary or wages. However, in the context of salary income under section 16 the condition precedent to the classification of income under this head is that the payer and the payee have the relationship of the "employer" and "the employee". The appellant in the instant case who has received commission in addition to the salary is an employee of the payer of the commission as well as the salary.
17. The provisions of section 22 are not applicable to appellant's case because he himself has not claimed that he is engaged in any business or profession.
18. This bring us to the claim of the appellant that the commission received by him is "income from other sources"; hence chargeable under section 30 of the Ordinance. Subsection (1) of section 30 provides at the' outset that income of every kind which may be included in the total income of the assessee under the Ordinance shall be chargeable under the head "income from other sources" if it is not included in his total income under any other head"_ (Emphasis provided by us). Subsection (2) of section 30 thereafter specifies five specific incomes in particular and without prejudice to the generality of the provisions of subsection (1) which shall be chargeable under section 30, save as otherwise provided under the Ordinance. (Emphasis provided by us). Commission income is not one of the five specific incomes while it is included in appellant's total income under the head 'salary' by virtue of provisions of sub-clause (iii) of clause (a) of subsection (2) of section 16 of the Income Tax Ordinance, 1979. We, therefore, find no substance in the contention of the appellant that the commission received by him from his employer in addition to his salary is not salary income but "income from other sources" and expenditure laid out or expended wholly and exclusively for earning such income is to be allowed or deducted in computing such income in accordance with the provision of section 31(l)(b) of the Ordinance. Since there is no provision under section 16 to allow any deduction on account of any expenditure incurred to earn the commission from the employer by the employee, the learned C.I.T.(A) is not justified in directing to allow the expenditure claimed by the appellant.
19. Accordingly, the impugned order of the learned C.I.T.(A) isle vacated and the assessment order is restored.
20 The appeal is allowed.
C.M.A./M.A.K./68/Tax(Trib.) Appeal allowed.