Meaning of “Commission”

Case Name : Harihar Cotton Pressing Factory Vs. CIT

Citation : [1960] 39 ITR 594 (bom.)

Court : Bombay high court

Section :  36

Meaning : 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.

Case Name : Raja Ram Kumar Bhargava Vs. CIT

Citation : [1963] 47 ITR 680 (all.)

Court : Allahabad high court

Section : 36

Meaning : The word ‘commission’ in this clause should be interpreted ejusdem generis with the word ‘bonus’.

Case Name : Bharti Cellular ltd. Vs. ACIT

Citation : [2011] 12 taxmann.Com 30/200 taxman 254/ 

Court : Kolkata high court

Section : 194 to 206c

Meaning : In explanation(1) of section 194h provides inclusive definition of commission or brokerage and the same may be received or receivable indirectly also by person acting on behalf of another person or service rendered. In usual business transaction commission is paid by the principal to agent after services is rendered. But by aforesaid explanation, commission which is receivable in future is within its sweep.

It appears from the records in this case that the transaction in case of pre-paid sim cards, and rechargeable coupons, sufficient stocks are to be kept by franchisee, and then the same are to be sold to the retailers at a rate stipulated by the assessee, say at rs. 324 And the retailer is allowed to sell it to the ultimate customer at the maximum price again fixed by the assessee, say at rs. 330. The assessee is to realize lesser rate say at rs. 317 Per sim card from franchisee. Thus, discount of rs. 7 Is given. Therefore, after selling all the sim cards and pre-paid coupons to the retailers the franchisee is to make payment of sale proceeds to the assessee after deducting a discount of rs. 7 Per sim card. Thus, this receipt of discount at the rate of rs. 7 Is in real sense commission paid to the franchisees. Hence all the trappings of liability as agent, of the franchisee towards assessee subsists.

Case Name : Kotak Securities Ltd. Vs. Dy. CIT

Citation : [2012] 18 taxmann.Com 48/50 sot 158/14 ITR (trib.) 495/147 TTJ 443 (mum.)

Court : Mumbai high court

Section : 194 to 206c

Meaning : Scope of expression ‘commission’, will be confined to ‘an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions’ and shall not extend to the payments, such as ‘bank guarantee commission’, which are in the nature of fees for services rendered or product offered by the recipient for such payments on principal-to-principal basis. The common parlance meaning of the expression ‘commission’, thus, does not extend to a payment which is in the nature of fees for a product or service; it must remain restricted to a payment in the nature of reward for effecting sales or business transactions, etc.

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