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M/s. Nagpur Engineering Co. Pvt. Ltd. Versus The Commissioner of Income Tax

2015 (4) TMI 945 - BOMBAY HIGH COURT

Disallowance under section 40(c) - Whether the commission on sales paid by the assessee constituted “the provisions of any remuneration or benefit or amenity” within the meaning of Section 40(c)(iii)? - Held that:- In order to attract ceiling under Section 40[c] of the Act, the payment in dispute must be shown to be a periodical payment. A lumpsum payment or one time payment does not fall in it. Here the fact that commission was payable only if annual turn over exceeded ₹ 2 Crores, is not .....

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ts before it had succeeded. We therefore, find its disallowance under Section 40[c] not permissible. - Decided in favour of the assessee - INCOME TAX REFERENCE No. 21 OF 1993. - Dated:- 9-4-2015 - B. P. Dharmadhikari And S.B. Shukre, JJ. For the Appellant : K.P. Dewani For the Respondent : Mr. Anand Parchure, Advocate for Respondent. Oral Judgment. (Per B.P. Dharmadhikari, J) The applicant/ assessee moved an application under Section 256[1] of the Income Tax Act, 1961 before the ITAT, Nagpur req .....

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e Income Tax Act, 1961 ? 2. That in view of the findings recorded by the Tribunal that the claim of commission paid was reasonable, any disallowance under section 40(c) is permissible ? 2. Shri Dewani, learned counsel for the assessee after narrating the facts has urged that the commission paid to the Directors of assessee was a lumpsum payment, contingent upon the annual turn over and as such could not have been subjected to Section 40[c] of the Income Tax Act. He has relied upon certain judgme .....

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paid to the Directors of the assessee company, who were under its control, and though it is made in one lumpsum, its splitting every month is not prohibited. He has submitted that in this situation, when the Directors were being paid remuneration and commission has been paid over and above it, it is rightly subjected to section 40(c)(iii) of the Income Tax Act. 4. The facts are not in dispute. One B.N. Shaw (HUF), A.K. Jaiswal and M.K. Jaiswal have been paid commission to the extent disclosed in .....

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een upheld by CIT (Appeals) and thereafter by ITAT. 5. Perusal of the order passed by the CIT (Appeals) shows that it has relied upon two Special Bench judgments which are mentioned in paragraph no.5 of its order. The judgments of Special Bench in case of I.T.O. .vrs. Sapt Textile Products India Ltd. (ITA No.1304/Bom/79 dated 20.04.1981), is examined by this Court and the appeal of the Assessee - Sapt Textile has been partly allowed. The expenditure on payment of retirement, gratuity to one of t .....

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ourt reported at (1993) 201 ITR 1063 (SC) (Bharat Beedi Workers (Private) Ltd .vrs. CIT) has been followed. However, as reference before this Court is restricted to only Section 40[c], we are not required to look into any other provision. 6. Other Division Bench judgment of this Court reported at (1994) 210 ITR 770 (CIT .vrs. Colgate Palmolive (India) again considers the issue of retirement gratuity. This judgment is delivered by same Bench on same day i.e. the day on which SAPT Textile Produces .....

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alogy, it is observed that if the computation provisions contained in Section 40[c] and Section 40A[5] do not for nonperiodic payments not relatable to the previous year, such payments are not contemplated, as being covered by these sections. It is further observed that maximum ceiling in Section 40[c] is clearly in respect of periodic payments only. Conclusion drawn is, payments in both these sections envisage only periodic payments. 7. Here it will be proper to refer to the Division Bench judg .....

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International Paper Co. which was the sole proprietary concern of the said Managing Director was correct under Section 40[c]. The Division Bench in paragraph no.5 in this judgment has made reference to judgment of Karanataka High Court reported at (1980) 121 ITR 551 (Kar) T.T.Krishnamachari & Co. .vrs. ITO), and found that there the Karanataka High Court categorically held that expenditure incurred by way of commission paid to the independent selling agent to act as an independent entreprene .....

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by the Hon'ble Apex Court, has been reproduced. In para 8, the Division Bench has held that the Hon'ble Apex Court has clearly answered the controversy about the scope and ambit of Section 40[c]. It has found that payments made to Directors, as Directors (qua Director) fall within Section 40[c]. Payment made in consideration of the valuable right parted with by the directors of the assessee company in favour of the assessee company are outside the scope of the said section. Thereafter i .....

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pothetical illustrations in that paragraph and thereafter found that the expenditure must be relating to the period comprised in the previous year or specific part thereof. The Hon'ble Apex Court also in case of (Bharat Beedi Workers (Private) Ltd .vrs. CIT) (supra), considered the issue and in paragraph no.8 found that the net is cast very wide to ensure that excessive or unreasonable payments are not made to the persons in control of the affairs of the assessee in the name of paying for th .....

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urt that Section 40[c] refers to an expenditure incurred by making periodical payments to a person mentioned in that clause apparently for any personal service that may be rendered by him. 8. Gujarat High Court has in (2001) 251 ITR 364 (Guj) (CIT .vrs. Commercial Ahmedabad Mills Co. Ltd.), while accepting the view of Bombay High Court in Colgate Palmolive (India) (supra), noted that in facts before it a lumpsum payment of ₹ 10,500/was made to the Managing Director on his retirement. It al .....

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