(delivering the judgment of the court): This appeal is against the decision of Harun J. arising from an appeal by way of case stated from the Special Commissioners of Income Tax. The only question in this appeal is whether the payments made by the respondent by way of a profit distribution and incentive scheme introduced in 1961 is a bonus as contended by the appellant or a commission as contended by the respondent. In other words, the only dispute is the legal effect of the documents and the facts giving rise to the question whether the additional remuneration paid to the managerial staff under the group bonus scheme was a bonus under section 39(1)(h) of the Income Tax Act 1967.

The facts are not in dispute. The respondent was incorporated on 23 December 1953 under the Companies Act 1948 of the United Kingdom. It was a subsidiary of Highlands & Lowlands Para Rubber Co Ltd which was one of a group of 11 companies (referred to as "the group") wholly-owned by the principal company. The respondent and all the other members of "the group" were managed by Barlow Boustead Estates Agency Sdn. Bhd. (referred to as "the agent") up to and including the relevant years of assessment. All the staff of "the group" were engaged by "the agent" through standard letters of appointment. The staff so appointed were transferable or interchangeable within "the group". All the companies in "the group" are in the plantation industry. In compliance with the policy of "the group", the administrative staff (i.e. the managerial staff) were paid additional remuneration in accordance with the bonus scheme and the letters of appointment.

The managerial staff were each paid a monthly salary and in addition thereto they were entitled to participate in the group bonus scheme in accordance with the standard letters of appointment. On the other hand, the clerical staff (i.e. the non-managerial staff) were each paid a bonus at the discretion of the respondent as there was no contractual obligation on the part of the respondent.

In respect of the managerial staff, the scheme came into operation on 1 January 1961. It was based on a number of factors, viz. status of employees, amount of salary drawn, duration of service and planted acreage managed, for which points would be given for equitable distribution of a provision created by reserving 4% of the agricultural profits of "the groups". The amount of payment varied with the number of points earned by each participant. The respondent had been making bonus payments to its managerial staff since the scheme was introduced. As regards the non-managerial staff, for the last 12 years or so they received bonus payments annually in excess of two months' salary. The respondent does not dispute its liability to tax in respect of the discretionary bonus payments to its non-managerial staff in excess of two months' salary. On the other hand, the managerial staff were paid under a contractual obligation tied to profitability and on appropriation of 4% of the agricultural profits of "the group".

For the year of assessment 1975, the appellant disallowed for deduction from the gross income of the respondent the bonus paid to the managerial staff pursuant to the scheme in excess of the limits stipulated in section 39(1)(h) of the Income Tax Act 1967. Accordingly, by a notice of assessment dated 5 January 1980 the appellant informed the respondent that an additional assessment in the sum of $319,066.50 had been made for the year of assessment 1975.

The respondent contended that the additional remuneration paid to the managerial staff under the group bonus scheme was actually a commission while the appellant argued that the same was a bonus payment and as such for the year of assessment 1975, a sum of $319,066.50 was disallowed for deduction. In other words, the respondent disputed the applicability of section 39(1)(h) to the group bonus scheme of the managerial staff.

The question for the determination of the