2023 (9) TMI 600 - ITAT DELHI

Disallowances of working Director’s commission on profits - Whether eligible as deduction u/s 36(1)(ii)? - HELD THAT:- We find that the provisions of section 36(1)(ii) of the Act per se could not be made applicable. Provision of section 36(1)(ii) of the Act states whether any sum paid to an employee as bonus or commission for services rendered, whether such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission.

If the said commission payment is not made, then the very same sum would be available for distribution to him as profits or dividend. In the instant case, as stated earlier, Mr. Feroz is only holding 5% shares in the assessee company and remaining 95% held by Mr. Mohit.

Hence, the decision to declare dividend should be taken with the consent of Mr. Mohit and it is not left to the prerogative of the assessee alone who happens to be minority share holder in the assessee company. Hence, in the facts and circumstances of the instant case, the payment of commission to the Director could not have been paid to him as profit or dividend. Hence, the provision of section 36(1)(ii) of the Act are not applicable at all. Further, we also find Hon’ble Jurisdictional High Court in the case of Control & Switchgear Contractor Ltd [2014 (6) TMI 46 - DELHI HIGH COURT] had held commission paid to Directors is eligible in the hands of the assessee company and they would not be hit by the provision of section 36(1)(ii) of the Act.

Thus we direct the ld AO to delete the disallowance of commission made in the instant case. Accordingly, ground No. 1 raised by the assessee is allowed.

Seeking appropriate credit for pre paid taxes and adjustment of refund that are due to the assessee - HELD THAT:- This requires factual verification and hence, AO is directed to decide the same in accordance with law. Accordingly, ground No. 2 of the assessee is allowed for statistical purposes.