R. Jayasimha Babu, J.
1. The questions referred to us at the instance of the Revenue in these references in T. C. Nos. 166 and 167 of 1989, are common except for the difference in the assessment years mentioned in question No. 2. The questions referred to us for the assessment years 1974-75 and 1975-76 are :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of subsidy received by the assessee should not be deducted from the actual cost of the assets for the purpose of granting depreciation and investment allowance and
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that salary and commission payments made to Shri K. Ameenur Rehman and Shri B. Akbar Pasha for the assessment years 1974-75 and 1975-76 would not form part of salary ?'
2. The questions referred to us for the assessment years 1976-77, 1978-79 and 1980-81 are :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of subsidy received by the assessee should not be deducted from the actual cost of the assets for the purpose of granting depreciation and investment allowance and
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that salary and commission payments made to Shri. K. Ameenur Rehman and Shri B. Akbar Pasha for the assessment years 1974-75 and 1975-76 would not form part of salary ?'
3. As regards the first question there is no dispute that this question has to be answered in favour of the assessee and against the Revenue, in the light of the decision of the Supreme Court in the case of CIT v. P. J. Chemicals Ltd. : [1994]210ITR830(SC) , wherein it was held that the expression 'actual cost' in Section 43(1) of the Income-tax Act, 1961, needs to be interpreted liberally and that such a subsidy does not partake of the incidents which attract the conditions for its deductibility from the actual cost and therefore, the amount of subsidy is not to be deducted from the actual cost under Section 43(1) of the Income-tax Act, 1961, for the purpose of calculation of depreciation.
4. As regards the second question, there is no dispute about the fact that the two individuals therein, viz., K. Ameenur Rehman and B. Akbar Pasha were employees during the previous years relevant to these assessment years and had been paid salaries. In addition to salary, they were also paid commission. According to the assessee, the payment of commission was under a separate agreement, which was meant to remunerate them for the efforts put in by them in securing export orders for the company. The salary paid to them, according to the assessee was for the services rendered by them as employees. The assessee claimed that the commission paid had not been received by these two persons in their capacity as employees and therefore those payments were to be regarded as their business income and not as salary income.
5. Counsel referred to the case of Hochstrasser v. Mayes [1960] AC 376 ; [1961] 42 ITR 457 . The House of Lords held that the amount paid by the employer to the employee to compensate his loss, arising from the sale of a house could not be regarded as an amount accruing to the employee by reason of his employment under Schedule D of the U. K. Income-tax Act, 1952. The payment so made to the employee was in terms of a provision in the housing scheme framed by the employer that if on transfer, the employee wished to sell or let his house he was to give an option to the employer to purchase it at a fair value. If the option was refused he was free to sell it. But, in either case, the employer guaranteed to protect him from any capital loss, provided that the house had been maintained in good repair. The employees were to enter into a formal agreement with the employers in this regard. The amount paid by the employer to the employee in that case was to compensate him for the loss, which he would have sustained by the sale of his house for a sum which was less than the sum for which he had acquired the house. It was in that background the court held that that payment should not be regarded as a profit or loss arising to him by reason of the office held by him as an employee under the employer. After setting out the facts in detail, Lord Denning who was one of the Members of the Bench observed that (page 476 of ITR) : 'My Lords, tried by the touchstone of common sense--which is, perhaps, rather a rash test to take in a revenue matter--I regard this a plain case. No one coming fresh to it, untrammelled by cases, could regard this 350 as a profit from the employment. Mr. Mayes did not make a profit on the resale of the house. He made a loss. And even if he had made a profit, it would not have been taxable. How, then, can his loss be taxable, simply because he has been indemnified against it ... If Mr. Mayes had been injured at work and received money compensation for his injuries, no one would suggest that it was a profit from his employment. Nor so here, where all he receives is compensation for his loss'. The learned judge also observed that (page 477) 'I need hardly say that, if there were available to your Lordships a definition of 'profits', it would be a pearl of great price. But I am afraid that this pearl turned out to be cultivated and not real . . . It did not survive the critical examination of your Lordships.' The learned judge also observed that the speeches showed the way in which judges look at cases, and in that sense are useful and suggestive, but in the last resort each case must be brought back to the test of the statutory words. So tested the question of remuneration of the employee and the loss sustained by him on the sale of the house in terms of the housing scheme could not be regarded as 'profit'.
6. That decision does not assist the assessee. Though learned counsel sought to derive support from the observation of Viscount Simonds in that case, that the issue turned on the question as to whether the fact of employment is the causa causans, or only the sine qua non, of benefit. The learned judge also observed that it must often be difficult to draw the line and say on which side of the line a particular case falls. In that case, there was no profit at all to the employee and there was no occasion to treat it as taxable profit.
7. Learned counsel for the assessee also relied on the decision of the Gujarat High Court in the case of Addl. CIT v. Moolchand Jaikishndas and Co. : [1977]108ITR500(Guj) , wherein the Gujarat High Court held that the payments made by a firm to the textile mills in accordance with the agreement with them were to be allowed as business expenditure under Section 56(1)(ii) and Section 37 of the Income-tax Act, 1961. No question of treating a commission as part of salary arose for consideration therein. The Gujarat High Court relied on the findings of the Tribunal that the .transactions were genuine and not sham or bogus ones and were in the interests of the trade. The court allowed the deduction of the commission paid as an item of expenditure under Section 37 of the Income-tax Act, 1961. The Gujarat High Court also noticed the fact that the Tribunal had found that in that particular trade of dyestuffs and colour chemicals, it was the usual practice to pay secret commission to dyeing masters, printing masters, etc., in order to secure orders and to ensure that the supplier concerned increases his sales. But the court did not find it necessary to examine the morality or legality of such payments. The court, however, held that the payments having been made, the commission paid to the employees through whom such payments were effected depending upon the manner in which they were able to secure orders, the payments were to be deducted as expenses for the purposes of Section 37 of the Income-tax Act, 1961.
8. Payments which are illegal can no longer be claimed as deduction under Section 37 of the Income-tax Act, 1961, after the amendment to that Section by the Finance (No. 2) Act, 1998. As to how the transactions involving illegal payments should be treated for the earlier assessment years does not arise for our consideration in this case. We therefore refrain from making any observation as to whether the court is bound to accept all items of expenditure irrespective of their legalities as deductible items of expenditure. We may, however, observe that the Explanation now added to Section 37 of the Income-tax Act, 1961, is most salutary. That Explanation reads as under :
'For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure . . .'
9. The facts as set out in the order of the Tribunal and in the statement of the case before us, clearly show that these two individuals were the employees of the firm during the relevant period and they were paid salary. A contract of employment necessarily involves the rendering of services by the employee to the employer and the use of his skill, energy and time for the benefit of the business in which he is employed. If the employer chooses to remunerate those services by adopting different measures for different aspects of the services received from the employee, the payments nevertheless retain the character of compensation to the employee for the skill, labour and the time put in by the employee for the benefit of the employer. The definition of salary in Section 17 of the Act is couched in wide terms to take into account the remuneration paid to the employee, whether it is labelled as salary or otherwise by the employer. It is not the label given to the payment that is determinative of the question as to whether it is salary. The definition of salary in Section 17(1) of the Act is an inclusive definition. Sub-clause (iv) of Section 17(1) of the Act makes a specific reference to commission paid in lieu of or in addition to any salary or wages. As observed by Lord Denning the words of the statute are ultimately to be regarded as decisive. When the language of the statute is plain and unambiguous, the width of its meaning cannot be cut down by importing the principles laid down in the cases decided under other statutes in the background of facts which are wholly dissimilar.
10. The commission paid to these two employees is to be regarded as part of the salary and the Tribunal was in error in holding otherwise. The mere fact that two agreements existed does not necessarily imply that the payment made under one agreement is not to be regarded as part of salary, when undisputably all the work done under the agreement was performed by the employee for the benefit of the employer. The fact that the employer utilised the same employee to perform different types of work under two separate agreements does not give to such payments a character other than that of 'salary', having regard to the wide definition of the term in Section 17(1) of the Act. The Income-tax Officer was right in taking the view that the commission paid was part of the salary.
11. We answer the first question in this reference in favour of the assessee and the second question in favour of the Revenue.