Subba Rao, J. - (1.) This appeal by special leave is preferred against the judgment and order of the High Court of Bombay in a reference made to it by the Income-tax Appellate Tribunal under section 66(1) of the Income Tax Act, 1922, hereinafter called the Act.
(2.) The following question was referred to the High Court : "Whether, on the facts and in the circumstances of the case, the commission of Rs. 2,45,557 was exempt in the hands of the assessee by virtue of the Notification No. 878F dated March 21,1922, as amended by Notification No. 8 dated March 24, 1928 -
(3.) The facts that led up to the reference may be briefly stated : One S. P. Gallini was dosing business in art-silk in the name and style of "Rayon Yarns Import Company". Under an agreement dated May 30, 1948, he appointed E. Francescanto, the respondent, as his manager. For the assessment year 1949-50 Gallini claimed a deduction of Rs. 2,45,557 the commission paid by him to the respondent in terms of the agreement, from his taxable in come. But the Income-tax Officer a rejected the claim on the ground that "the payment of commission is but a way to reduce his income and his tax liability." That is to say, in effect and substance he held that the profits of the said company were divided between Gallini, the employer, and the respondent, his employee, to evade income-tax and, therefore, the said amount was to be included in the taxable income of the employer. After having assessed the said amount in the hands of the employer for the assessment year 1949-50, the department sought to assess the said income over again in the hands of the assessee as commission received by him from his employer. The assessee claimed exemption on the basis of the Notification No. 878F dated March 21, 1922, as amended by Notification No. 8 dated March 24, 1928. The claim was rejected. On appeal, the Appellate Assistant Commissioner came to the same conclusion as the Income-tax Officer. On further appeal, the Appellate Tribunal, Bombay held that the conditions laid down by the said notification had been fulfilled and that the assessee was entitiled to the exemption claimed by him. At the instance of the revenue, the aforesaid question was referred to the High Court for its opinion. The High Court agreed with the Appellate Tribunal and answered the question in the affirmative. Hence, the present appeal.;