9911796707
Advanced Search 
TMI Blog2009 (11) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... tia and Smt. Kavita Bhatia. The assessee was asked to justify the payment of commission to these two Directors and also asked that how these Directors are contributing to the sales of the company. The assessee was also asked to furnish the details of the parties to whom sales through the efforts of the Directors have been affected. According to the Assessing Officer, the assessee has failed to adduce any evidence for the justification of the commission paid. The Assessing Officer took that view that the reply of the assessee-company is devoid of merit and is in fact vague. The Assessing Officer also observed that the payment of commission to the Directors was nothing but payment for extra-commercial purposes and has nothing to do with the business and is not laid out wholly and exclusively for the purpose of business. He, accordingly, made the impugned disallowance of Rs. 30 lakhs. When the matter went in appeal before the CIT(A), the CIT(A) has dealt with the issue in details and deleted the addition by observing as under : "2. The arguments of ld. AR summarized below : (i)That the expenses in question has been incurred wholly and exclusively for the purpose of the appellant's b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to establish that commission on sales was paid for extra-commercial consideration. (vi)Ld. A.R. filed following supporting evidences/documents with the arguments that the same were also filed before the Assessing Officer for his consideration : A. PB 1 is a letter addressed to the AC submitting the detail about the remuneration paid to the directors and the business and commercial expediency and bringing the fact of the income-tax returns of the directors on record and remuneration approved by shareholders and that there was enhancement of sales by around 20 per cent. B. PB 2, 6, 7 are further submissions to the Assessing Officer, in this regard on the aspect of business and commercial expediency of the impugned commission. C. PB 4 is the copy of notice of EGM through which apart from salary, the directors were allowed commissions. D. PB 9, 9A, 9B, 9C are the copies of computation of income and acknowledgement of returns of the directors for assessment year 2003-04 to show that taxes have been paid by them at the maximum marginal rate. E. PB 12 is the computation of income of the appellant for assessment year 2003-04 which also shows that company has pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations are reproduced below: 'Thus, in view of the above discussion, it is held that the payment of commission to the Directors was nothing but payment for extra- commercial purposes and has nothing to do with the business and is not laid out wholly and exclusively for the business purposes and is, thus, disallowed by invoking the provisions of section 37(1) of the Income-tax Act, 1961. (ii)However, I do not find any dispute about terms and conditions of the payment and other procedures! formalities, which were required to be followed for making such payment to the Directors. I further find that the sales have gone up by almost 20 per cent during the year and there is no dispute about the payment made to the Directors. (iii)I further find that the income so earned by these two persons have been offered to tax in their respective returns of income which have been taxed at the maximum marginal rate as is clear from the copies of returns of these two persons filed by the appellant in the paper book. Therefore, does not seem to be any tax avoidance motive. (iv)I, further find that both the directors, viz., Mr. Raj Kumar Bhatia and Mrs. Kavita Bhatia were paid remuneration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was also paid in the form of commission on turnover at the rate of 0.5 per cent. The total amount so paid is Rs. 30 lakhs. This remuneration including commission was approved in the general meeting of the shareholders as is clear from the resolution placed in the paper book. We also perused the relevant provision of the Companies Act and noted that under the said Act, the remuneration can be paid to the directors by way of commission also. We find that the pleading made by the assessee (Paper book pages 1, 2, 6, 7 and 68) before the authorities below was that remuneration including commission in question was paid to the whole-time working directors and sales of the assessee-company have increased by 20 per cent. This fact has not been denied by the revenue. We further find from the finding as reproduced in the preceding paragraph of the CIT(A) that the said directors have paid tax on such commission income at the maximum marginal rate and, thus, no tax avoidance motive could be attached from this payment of commission. The assessee has returned income even after paying the commission to the whole-time working directors to the tune of Rs. 2,26,82,259. Income returned by Mr. Raj K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t alone is essential and its excessiveness can be seen under section 40A(2) only. We find that applicability of section 40A(2) is not the case of Assessing Officer. Even otherwise, commission paid to the directors was part of remuneration of the directors as Supreme Court has held in the case of Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1 that commission paid as fixed percentage of turnover is nothing but assessable as salary. Thus, section 36(1)(ii) has got no application. Further the contention of the assessee is also duly supported by the decision of Supreme Court in the case of Shahjada Nand & Sons v. CIT [1977] 108 ITR 358 in which the Apex Court held that commission paid to the employees is allowable and there is no need for any contractual obligation or extra services performed by the assessee. We, therefore, are of the opinion that the commission payment of Rs. 30 lakhs to the whole-time working directors of the assessee-company disallowed by Assessing Officer was rightly deleted by CIT(A) and, accordingly, we do not find any infirmity in the order of CIT(A). We, therefore, confirm the order of the CIT(A). 5. In the result, the appeal filed by the revenue is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
