HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Gujarat, Ahmedabad v. Tejaji Farasram Kharawalla Ltd.
Civil Appeal No. 2162 of 1966
[1968] 1 SCR 37 ·
Indian Income-tax Act, 1922: section 4(3)(vi) · Finance Act, 1955: amendment to section 4(3)(vi)
Sources & disclosures includedDownload original judgment / order
3-judge bench; unanimous judgment delivered by J. C. Shah, J. · J. C. Shah, J. · S. M. Sikri, J. · V. Ramaswami, J.
Assessment years: 1949-50
01 · Facts of the case
Under a 1928 agreement, Ciba (India) Ltd. appointed Tejaji Farasram Kharawalla as selling agent for specified dyes and dye-stuffs at 12.5 per cent commission, inclusive of office, godown, rebate and contingency charges. A 1935 modification split that amount into 7.5 per cent selling commission and 5 per cent compensation for contingency expenses such as payments to dyeing masters and agents. The agency was assigned to the respondent company in 1947. For assessment year 1949-50, the officer taxed the report's stated Rs.58,025 difference between Rs.1,90,538 received as the 5 per cent component and Rs.1,32,512 spent. The Tribunal and later the Gujarat High Court treated the full 5 per cent as exempt (SCR pp.38-40; PDF pp.2-4).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
Section 4(3)(vi) covered expenses incurred or to be incurred, but the stated purpose of the grant was not by itself determinative. The exemption protected money received not for the grantee's own benefit but to meet expenses wholly and necessarily connected with the duties. Once the expenditure need was met, any surplus retained by the agent no longer bore that character and became additional remuneration even if no refund could be demanded. The Court disapproved contrary reasoning in the earlier Tejaji Farasram decision and Sharma & Company (SCR pp.40-41; PDF pp.4-5). A multi-year grant was not automatically taxable after deducting only current-year spending: the officer first had to determine the allowance allocable to the accounting year, and only the difference from expenditure for that year was taxable. The Court said this allocation principle survived the 1955 amendment (SCR pp.41-42; PDF pp.5-6).
Source: Primary judgment: discussion
03 · Judicial decision
The Supreme Court allowed Revenue's appeal, discharged the High Court's supplementary answer and held that only the portion of the 5 per cent commission wholly and necessarily incurred in the year of account in performing the selling-agent duties was exempt under section 4(3)(vi). It made no order as to costs (SCR p.42; PDF p.6).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of Revenue on the exemption's extent. The entire 5 per cent component was not exempt; only qualifying year-specific expenditure escaped tax (SCR pp.40-42; PDF pp.4-6).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: for a reimbursement or expense-allowance claim, preserve the grant terms, covered period, duty nexus, expenditure ledger and any balance retained. Separate the amount allocable to the relevant year from actual qualifying expenditure; a contractual description cannot by itself exempt a surplus. Apply only the statutory version governing the year under review (based on SCR pp.40-42; PDF pp.4-6).
Source: Primary judgment: reviewPoint
Source & verification
Download original judgment / order · Open cited source rendition
Full 6-page SCR report read and checked. The editorial headnote and adjacent-report boundary text were distinguished from the judicial opinion and operative order.
- Exact source bytes, SHA-256 and 6-page count match catalogue asset 1968_1_37_42; every page was reviewed.
- The source verifies Civil Appeal No. 2162 of 1966, the stated bench, issues, reasoning and operative result.
- No published or archived standalone AKHB note with this source hash, case identity and operative decision was found.
Statutory scope
The judgment construes section 4(3)(vi) of the repealed Indian Income-tax Act, 1922 as it stood for assessment year 1949-50 and separately comments on its 1955 amendment. It does not determine current employee-allowance, agency-remuneration or business-deduction law. No current-law or later-treatment clearance was undertaken.
Later treatment
Source checked 2026-10-11. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
Coverage, AI disclosure & professional disclaimer
Selected Supreme Court income-tax decisions and procedural orders checked against their identified sources. This collection is not exhaustive. The research catalogue has 2,569 indexed PDF assets, including alternate copies and incidental matches; that is not a count of unique or reviewed judgments. Historical and unreported coverage remains open.
AI-assisted research checked against the identified source. Extraction, interpretation or omission errors remain possible. Source review does not mean independent approval by a practising professional. Verify every material statement against the complete original judgment.
General research information only; not legal or tax advice, a certified judgment or a substitute for the full order. Applicability depends on facts, assessment year, statutory version and jurisdiction. Subsequent treatment is unverified unless a note expressly identifies the sources checked. Downloading does not create a professional engagement. Obtain case-specific advice before reliance.
The official 1961–2025 structural correspondence does not establish that a precedent applies under the new Act. Verify the enacted wording, commencement and transitional provisions separately.