JUDGMENT - Chagla, C.J.

1. The question that arises in this reference is whether certain emoluments paid to one Sarabhai, who is an employee of the assessee firm, was a permissible deduction. It appears that this employee was in the service of the assessee firm for the Samvat year 1900. Ho was acting as the manager and from 1990 to 1997 he was paid a salary and varying bonuses. Up to 1995 the bonuses paid to Sarabhai were allowed by the taxing department, but from 1996 when the bonuses went up to Rs. 22,751, the Income-tax Officer refused to allow the full bonus and allowed only a part of it. Then the case of the assessee firm is that in 1993 an agreement was arrived at under which Sarabhai was to be paid a salary and a certain commission on profits, and in respect of Samvat years 1998. 1999, 2000 and 2001 a claim was made by the assessee firm that as the emoluments were paid to Sarabhai under an agreement, whatever was paid was a permissible deduction.

This claim was rejected by the taxing authorities and ultimately the Tribunal also refused to allow the full amount of the emoluments to which Sarabhai was entitled under the alleged agreement. The view taken by the Tribunal was that the agreement relied upon by the assessee firm was not a genuine agreement. It also took the view that the emoluments were not reasonable under Section 10(2)(x). It further took the view that even if the deduction claimed fell under Section 10(2) (xv), the basis for decision under Section 10(2) (xv) was the same as the basis for decision under Section 10(2)(x), and the Tribunal held that even under Section 10(2) (xv) the amount spent was not a reasonable amount. On this decision of the Tribunal various questions have been submitted to us for our opinion. In the view that we take, many of the questions have become unnecessary to decide.

2. The first Question is whether it is possible to take the view that the case of the assessee firm falls under Section 10(2) (xv). Section 10(2) (x) deals with a special case where a sum is paid to an employee over and above his salary as bonus or commission for services rendered. Section 10(2)(xv) deals with a case where an expenditure is laid out or expended wholly or exclusively for the purpose of business, and according to well established canons of construction when a statute deals with a special case, it is not permissible to contend that the special case would also fall under the general provision in the statute. Section 10(2) (xv) deals with all those cases of expenditure laid out or expended wholly or exclusively for the purpose of business which do not fall under any other Sub-section of Section 10(2).

When an expenditure falls under Section 10(2)(x) in the sense that it is an expenditure in the nature of bonus or commission paid to an employee for services rendered, then its validity can only be determined by the test laid down in Section 10(2)(x) and not the test laid down in Section 10(2)(xv). Perhaps Mr. Palkhiwala is right that the question of reasonableness does not arise in the case of Section 10(2) (xv). If the Court is satisfied that an expenditure is laid out or expended wholly and exclusively for the purpose of the business, then the question of reasonableness would be a question of commercial expediency which must be determined by business men and not by taxing authorities. But when we turn to Section 10 (2) (x), every bonus or commission is not a permissible deduction; it is only bonus or commission which is of a reasonable amount.

3. It was attempted to be argued by Mr. Palkhiwala that Section 10(2) (x) only deals with cases where a payment is made to an employee ex gratia, but when there is a legal obligation to pay, then the case docs not fall under Section 10(2)(x), and he points out that in this case Sarabhai was entitled to his emoluments not ex gratia but under an agreement. For the purpose of this argument we will assume that the agreement relied upon by the assessee firm was a genuine agre

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