TMI Blog2009 (11) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission would have been paid as dividend to the shareholders. Companies Act, 1956 contains the limitations and restriction in the matter of payment of dividend and such discretion of the company either to pay or not to pay dividend cannot be assumed. AO cannot presume that had this commission not been paid, this would have necessarily been paid as dividend to the shareholders. There is no basis for this assumption. It cannot be ignored that the assessee-company had substantial profits out of which dividend could be declared if assessee-company so wanted. Thus, there is no basis for applicability of section 36(1)( ii ). CBDT Circular No. 551 relied upon by ld. AR clearly states that after amendment of 1989, fact of commission payment 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. [ 1978 (12) TMI 1 - SUPREME COURT] that commission paid as fixed percentage of turnover is nothing but assessable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business. According to ld. AR, Mr. Raj Bhatia and Mrs. Kavita Bhatia are whole-time working directors in the appellant-company and they were paid commission on sales at the rate of 0.5 per cent of the turnover. The impugned commission was paid for their efforts for the purpose of the appellant s business. ( ii )That the commission on sale so earned by them from the appellant-company was shown taxable in their hands and such income suffered the tax at the maximum marginal rate, i.e., the same rate which is applicable in case of the appellant-company. ( iii )That during earlier years, e.g., in assessment years 1999-2000, 2000-01, 2001-02 and 2002-03, such commission was paid to the tune of Rs. 4,69,221, 9,00,000, 9,00,000 and Rs. 90,000 respectively which was allowed in assessment als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py 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 paid the tax at the maximum marginal rate. ( vii )at the apparent is real unless proved otherwise by the person making allegations that it is not so. Tins principle was recognized by Hon ble Supreme Court in P.S. Bedi Co. 230 ITR 518. The burden to prove this allegation was all the more stringent on the shoulders of the AC, as such commission on sales have been paid in earlier years and stood accepted by the revenue. ( viii )In support of his contention, ld. A.R. further relied on following case laws : A.Delhi High Court in Siddhomal Sons v. CIT 122 ITR 839, 852 has held that any relationship between the assessee and the person concerned by itself without more, cannot lead to the inference of excluding the possibility of a payment being wholly and excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. ( 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 a measure of percentage of turnover and the commercial expediency can be decided by the appellant-company only. Further, both the directors have admitted the payment received and offered the same in their income-tax returns and paid taxes at the maximum marginal rates. They were also paid such commission not only in the appellant-company but in other companies also where they were directors. ( v )On going through the chart of commission filed on page 31 of the paper book, I find that the appellant paid commission to these directors in earlier years also on similar pattern. Thus, there is no reason to deviate the past pattern in this year; particularly in a case where the AC did not mention the legal provision for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Kumar Bhatia was Rs. 68,77,967 and by Mrs. Kavita Bhatia was Rs. 78,15,380 after including the commission income of Rs. 15 lakhs each. We also noted that the commission, though at the lesser amount, has been paid to the director in the earlier years also as is clear from the chart of commission placed in the paper book page 31 and it was allowed as a deduction in the assessment of the assessee-company. On specific query from the Bench, ld. AR pointed out that the commission based as percentage of turnover has been paid to both the directors in assessment year 2004-05 also which has been allowed in assessment of the assessee-company. All these facts show that commission payment has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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