TMI Blog2013 (5) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... company is concerned, it may be observed that the said Directors neither during the current year nor during the past have ever received any remuneration from the assessee company, whereas they are receiving salary income as well as professional fees etc. from other companies. If they have not received any remuneration in the past it does not mean that they are barred from receiving reasonable remuneration. The expenditure each paid to the said to Directors is hereby held to be justified. Disallowance of Depreciation – u/s 32 - Cars were purchased in the name of directors and claimed by the assesse as deduction as the same were shown in the books of the company and are appearing in the balance sheet of the company - Department considered the payment made towards the purchase to be treated as advance/loan to the Directors. Held that :- As held by the Supreme Court in the case of Mysore Minerals Ltd [1999 (9) TMI 1 - SUPREME Court] owner is one who is entitled to own the property to the exclusion of the others. In the present case, the assessee company cannot be said to be holding the property to the exclusion of the Directors especially when the cars are not only purchased in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad as under: 1. The Ld. CIT(A) erred in confirming the disallowance of incentive bonus paid to the Directors amounting to Rs.30,00,000 under section 40A(2)(b) of Income-tax Act, 1961. 2. The Ld. CIT(A) erred in confirming the disallowance of Rs.3,05,992 of depreciation claimed on Motor Car under section 32 of the Income-tax Act, 1961. The brief facts of the case are that the assessee company is engaged in the business of educational advice . The assessee company filed its return of income declaring total income of Rs. 4,82,47,568. During the assessment proceedings u/s. 143(3) of the Act, the AO noticed that the assessee had claimed deductions of expenses of Rs.30 lacs being Rs.10 lacs paid as incentives to each of its three Directors. The AO found that the assessee could not furnish any justification for the payment of incentives to the Directors noticing that no such incentives were ever paid in the past and the same were paid for the first time during the year under consideration. The assessee could not convince the AO regarding the services rendered by the Directors to justify the payment of incentives. Hence, the AO made disallowance of entire sum of Rs.30 lacs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consultation charges have been paid to Mr. Assan Sukhwani and Mr. Sushil Sukhwani. The assessee in his written submissions before the learned CIT(A) has claimed that all the Directors are whole time Directors fully engaged in the business of the company and they do not have any other business income or salary income. The assessee has relied upon the return of income of the said Directors. However, a perusal of the return of income of the Director Mr. Assan Sukhwani, at pages 7 and 8 of the paper-book filed by the assessee, reveals that he has shown salary income of Rs.2,10,000 from Blue Star Air Travel Services (I) Pvt. Ltd. , Rs. 1,50,300 from Micro Solutions India Pvt. Ltd. and Rs.10 lacs from Right Fin Cap Pvt. Ltd. (the assessee company) totaling to Rs.13,60,300. Apart from that he has also earned professional fees of Rs.71,000 from Bhuta Co. He also has income from other sources such as rental income, compensation etc. A perusal of the said computation of total income reveals that the said Director namely Mr. Assan Sukhwani is not working with the company on full time basis. He has received salary income from other two companies and has also received professional f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the learned CIT(A) for the reasons recorded in his order has deleted the disallowance on account of consultation charges paid to Mr. Ajay Sukhwani along with other persons and the revenue has not preferred any appeal, we are not supposed to give any finding in respect of that matter. However, the point of argument which has emerged is that if a Director, who is already receiving his remuneration as salary and apart from that has also received consultation charges for his services, how can the payment of Rs.10 lacs extra as incentive be justified without mentioning what extra or specialized services were given by him apart from the services in day to day course for which he has already been paid sufficient remuneration. The payment of Rs.10 lacs extra as incentive, only because the company has earned good profits cannot be justified. In our view, neither there was any legitimate requirement of business of the company for the payment of such incentive amount nor there seems to be any justification for the same. Even otherwise there cannot be two separate heads for remuneration for services i.e. one for consultation charges and the other incentives for the services over and above th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of expenditure of Rs.6.4 lacs each out of Rs. 10 lacs paid to the Directors is hereby confirmed. 6. Now coming to the second issue regarding disallowance of depreciation of Rs.3,05,992 on three cars registered in the name of Directors. The learned AR before us has submitted that though the cars are registered in the name of the Directors, the said motor cars are shown in the books of the company and are appearing in the balance sheet as asset of the company. The said motor cars are used for the business of the assessee company and, therefore, depreciation has rightly been claimed on the said cars. To stress his point he has relied upon the following authorities: CIT vs. Navdurga Transport Co. (1998) 149 CTR 219 (All) Mysore Minerals Ltd. v. CIT CIT v. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 (Bom) 7. We have heard the learned representatives on this point and have also gone through the record. We may observe that in this case all the three cars on which the assessee claims ownership and has claimed depreciation, were purchased by the assessee company in the individual names of the Directors. Not only invoice/bills have been issued in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings through a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. Building owned by the assessee the expression as occurring in section 32(1) of the Income-tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others. The Hon ble Supreme Court has further observed as under: It is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court that the delivery of possession by the Housing Board to the allottee towards conferring ownership. Documentation was delayed only with the idea of compelling the allottee to observe the schedule of payment. It was not the case that the houses were allotted in the name of the persons others than the assessee company. Not only the houses were allotted to the assessee company but also the possession was given by the Housing Board to the assessee company. It was under such circumstances, the Hon ble Supreme Court has held that the assessee company was exercising its domain, possession and ownership over the property to the exclusion of all others and only because the documentation of the title deed was delayed due to certain reasons, that itself was not a ground to disallow the depreciation on the houses of which the assessee company was having use and possession being its owner. In the case of CIT vs. Navdurga Transport Co. (supra), the assessee firm was constituted of seven partners to carry on transport business. Four partners contributed money as capital while the other three partners brought their trucks into the firm as their capital contribution. The three vehicles we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vehicle could not be transferred in the name of the assessee company, whereas the assessee company had been using the said vehicles being its owner and exercising its domain over the vehicles to the exclusion of all others. The assessee company without assigning any reasons, not only purchased the vehicle in the name of the Directors but also the said vehicles were registered in the individual name of the Directors. The Directors under law are not only the legal owners of the property (car) but are also in actually using and possessing the same. Only because the said cars have been shown in the balance sheet or books of account as asset of the company, that does not mean that the company has become the owner of the same. As held by the Supreme Court in the case of Mysore Minerals Ltd. (supra) , owner is one who is entitled to own the property to the exclusion of the others. In the present case, the assessee company cannot be said to be holding the property to the exclusion of the Directors especially when the cars are not only purchased in the name of the Directors but also they are the registered owners of the cars. The said Directors of the assessee company have not sold or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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