ORDER
H.S. Ahluwalia, Judicial Member
1. These four appeals involve a very ticklish issue. In the original proceedings the assessee claimed deductions at Rs. 36,000 plus commission Rs. 58,625 on account of salary and commission paid to Shri H.S. Sethi, general manager of the assessee-firm. After some scrutiny the IAC allowed these claims. Subsequently, the IAC started fresh proceedings under Section 154 of the Income-tax Act, 1961 (‘the Act’) in which it was contended that the salary and commission paid to Shri H.S. Sethi exceeded the limit of Rs. 60,000 provided for in Section 40A(5)(a)(i) and (c) of the Act. This was a mistake and, therefore, he proceeded on to rectify the same by limiting the total to as prescribed by law. The assessee went in appeals to the Commissioner (Appeals) who was of the opinion that payment of commission to Shri H.S. Sethi had been made depending on the increase of sales and, therefore, the salary and commission to him related to different items for two different services performed by Shri H.S. Sethi. The payment was not in the nature of salary but was with reference to the guarantee of sales and, therefore, it could not be included along with salary so as to limit the allowance of Rs. 60,000. He, therefore, deleted the consequential disallowances on this ground. The revenue has come up in second appeal before us.
2. We have heard the representatives of the parties at length in these appeals and to our mind there is force therein. No doubt, the IAC making the assessment in the first instance had asked for detailed particulars regarding the payment of salary and commission by the assessee and, thereafter, allowed the claims which prima facie would show that he had applied his mind to this aspect of the matter also but there is no discussion in his order about the applicability of Section 40A(5). It could be that he was considering these payments from the angle of reasonableness and then deciding upon their applicability. The original order in relation to the year 1977-78 made in this behalf was on 17-9-1979. The present proceedings were initiated on 19-8-1983. Therefore, at that time the assessing authority had jurisdiction to proceed both under Sections 147 and 154 of the Act. In fact, the ultimate orders were also passed within limitation, i.e., on 16-9-1983. The mere fact that the commission was claimed separately from salary would, however, not taken it out of the ambit of word ‘salary’ as defined in Section 40A(5). Explanation 2 to this Sub- section reads as under :
Explanation 2 : In this sub-section,-
(a) ‘salary’ has the meaning assigned to it in Clause (1) read with Clause (3) of Section 17 subject to the following modifications, namely :-
(1) in the said Clause (1), the word ‘perquisites’ occurring in Sub-clause (iv) and the whole of Sub-clause (vii) shall be omitted;
(2) in the said Clause (3), the references to ‘assessee’ shall be construed as references to ’employee or former employee’ and the references to ‘his employer or former employer’ and ‘an employer or a former employer’ shall be, construed as references to ‘the assessee’ ;
Section 17 of the Act defines the word ‘salary’ as under :
For the purposes of Sections 15 and 16 and of this section,-
(1) ‘salary’ includes-
(i) to (iii) ** ** ** (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages ;
Whether Shri H.S. Sethi was being paid a commission in addition to salary or in lieu thereof has absolutely no relevance for the purpose of definition of ‘salary’ contained in this clause. In other words the assessing authority in the first instance did not at all read these express provisions of law. Had he read it there would have been no scope for coming to a different conclusion. The authorities relied upon by the assessee for the proposition that decision,;on a debatable point of law is not a mistake, namely, T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC), Ram Prashad v. CIT [1972] 86, ITR 122 (SC), I.N. Sundresh (HUF) v. Agrl. ITO [1983] 141 ITR 669 (Kar.), Addl. CIT v. Chemical Limes [1984] 149 ITR 325 (Raj.), Jaipur Udyog Ltd. v. ITO [1985] 156 ITR 377 (Raj.), CIT v. United Mercantile Co. (P.) Ltd. [1986] 158 ITR 41 (Raj.) and CWT v. Smt. Rajkumari Bangur [1986] 158 ITR 47 (Raj.) would not apply to the present case at all, inasmuch as in all these cases there was no clear cut provision of the kind as mentioned above in the statute book. The two cases which probably have any relevance to the dispute are a decision of the Tribunal in XYZ Ltd. v. ITO [1982] 8 Taxman 8 (Bom.-Trib.) and CIT v. Godrej & Boyce Mfg. Co. Ltd. [1985] 151 ITR 496 (Bom.). However, there is one very essential difference between these cases and the present case. In both these cases the amount originally allowed was the amount of guarantee commission paid to the managing director or other directors. The reasoning which prevailed with the Tribunal in the first case and with the High Court in the second case was that the directors clearly earned the commission not in consideration of their capacity as directors or employees but entirely in a different capacity, namely, as the guarantors of the creditworthiness of the assessee-company. Thereby they exposed their personal properties to the risk of being proceeded against the creditor, in case the company was not able to meet its obligation regarding the guaranteed credit, this commission was not dependent upon their personal efforts. In the present case although the agreement to pay commission appears to be a separate one as was argued at length by the assessee’s representative, the fact remains thai the commission was directed to be paid for performance of certain duties in relation to sales as an agent subject to condition that there was an increase of minimum 10 per cent from the previous year. But one thing is certain that for whatever the payment was due, it was for performance of services, may be in addition to his normal duties. The intention of Section 40A(5) is to restrict the total amount of payment regarding any individual. Any expenditure which results directly or indirectly in the payment of salary to an employee or former employee would be hit by the mischief of Section 40A(5). If the proposition of law as contained by the assessee is to be accepted this would render the provision of Section 40A(5) nugatory because anything could be paid by calling it a commission. We do not dispute that assessee can pay any amount of commission to any of its employees but the limits of Section 40A(5) have to be kept in view. This is not a guarantee commission which has nothing to do with the personal efforts of the employees. The salary may depend on the personal efforts of an employee so does the present commission. This cannot be said to be arguable by any stress of reasoning. It is purely a mis-interpretation of law. As regards the argument that the ITO had applied his mind to this aspect, the order of the ITO does not show that he had considered the provisions of Section 40A(5) with reference to the definition of salaries as contained in Section 17. Had he considered probably he would not have come to that conclusion. Therefore, we cannot presume that the ITO had applied his mind to the correct legal position. In such circumstances we sitting as a Tribunal would also rectify an order which does not take into consideration a particular provision of law if the same was silent about it. But if the matter had been discussed and a wrong conclusion arrived, probably rectification may not be possible.
3. Considering the overall circumstances of the case, we are of the opinion that the earlier order clearly suffered from a mistake apparent on record. We, therefore, accept these appeals, set aside the order of the Commissioner (Appeals) and restore those of the order of the IAC in this behalf.
4. In the result, the appeals are allowed.
A. Kalyanasundharam, Accountant Member
5. I agree with the conclusions arrived at by my learned brother and I would like to make some additional observations in the instant case. The general manager Shri H.S. Sethi was by means of an agreement paid salary and in the same agreement it was also provided in the ultimate para that he would also be entitled to claim of commission as a percentage of sales. He examined the details of salary and also examined the details of the commission paid and perhaps compared them with the earlier year and found them to be reasonable. There is a specific provision in Section 36(1) of the Act in respect of any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividends if it had not been paid as bonus or commission.”There is a provision to this section according to which it is necessary to consider whether the commission so paid is reasonable with reference to the pay of the employee and the conditions of his services, the profits of the business and the general practice in similar business or profession. The ITO applied these provisions and found the commission so paid as reasonable. The only error he committed was that the pay and the commission paid to the employee had a ceiling limit provided under Section 40A(5) which provision he omitted to apply to the instant case. This, therefore, was a mistake apparent from the record for which he invoked the provisions of Section 154. The term ‘mistake’ has been defined in the 20th Century Chambers Dictionary to mean to understand wrongly, to do amiss. This clearly establishes that missing of an application of a particular section is a mistake apparent from the record which is similar to the assessee making a claim under a particular section which was omitted to be considered and allowed by the ITO for which Section 154 is rightly applicable. In view of these reasons I concur with the conclusion arrived at by my learned brother.