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2020 (8) TMI 301 - AT - Income TaxDisallowance being commission on sales paid to the shareholder Director(s) - whether CIT (A) has failed to appreciate that the shareholder director was entitled to dividend in view of accumulated profit available and the commission so paid is clearly prohibited by the provisions of section 36(l)(ii)? - HELD THAT:- There is no dispute on fact that the Directors were given commission for promoting sales and increasing the sale of the company by their efforts and over the period of time the assessee's turnover has increased manifold and also the profit. Similar commission paid to the Directors in terms of same agreement has been allowed in the past by the AO himself in orders passed in scrutiny proceedings u/s 143(3). If directors in terms of Board resolution are entitled to receive commission for rendering services to the company and if it was in terms of employment on the basis of which they have been rendering services, then such remuneration/commission is part and parcel of salary. It is also not disputed that TDS has been deducted on such commission as salary. Otherwise also, the payment of dividend is made in terms of Companies Act, 1956 which has to be paid to all the shareholders equally and dividend is basically a return of investment and not salary or part thereof. As decided in AMD METPLAST P. LTD.[2011 (12) TMI 320 - DELHI HIGH COURT] payment of dividend is made in terms of the companies Act, 1956, Dividend has to be paid to all shareholders equally. This position cannot be disputed by the Revenue. Dividend is a return on investment and not salary or part thereof. Herein the consideration in the form of commission which, was, paid to Ashok Gupta was for services rendered by him as per terms of appointment as a managing director. " Similar view was taken on the concept of bonus payment following the judgment of AMD Metplast (P.) Ltd. (supra) in the case of CIT v. Carrer Launcher India Ltd. [2012 (4) TMI 440 - DELHI HIGH COURT] has decided this issue in favour of the assessee, interpreting section 36(1)(ii) - Decided against revenue.
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