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2012 (5) TMI 217 - ITAT DELHIAvoidance of Dividend Distribution tax - commission paid to director - allegation of avoidance of DDT - Disallowance u/s 36(1)(ii) - whether commission is paid in lieu of dividend - held that:- The AO’s conclusion that the corpus for paying the dividend had reduced does not reflect the correct legal position with reference to section 36(1)(ii). Whenever any commission is paid to an employee it is bound to reduce the corpus available for distribution as dividend. But that ipso-facto cannot be the basis for holding that commission is in lieu of dividend. All the facts and circumstances of the case have to be taken into consideration for arriving at right conclusion. It cannot be disputed that the company as well as Ms. Renu Munjal were bracketed in the highest income tax slab and the only effect was on account of saving dividend distribution tax to the company which was very minimum keeping in view the overall profits of the company. This cannot be held to be device for reducing the overall tax effect in the case of company. It is not disputed that had the commission not being paid to Mrs. Renu Munjal, she would not have received dividend to the extent of Rs. 39 lacs because her holding was only .1%. The dividend would have been much less than the commission actually paid to Mrs. Renu Munjal. Thus, sum of Rs. 39 lacs, in any case, would not have been paid to Mrs. Renu Munjal as profits or dividend if it had not been paid as commission. Following the decision in the case of Loyal Motor Service Company Limited vs. CIT, decided in favor of assessee.
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