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PWS ENGINEERS LIMITED Versus DY. COMMISSIONER OF INCOME TAX

2016 (6) TMI 596 - GUJARAT HIGH COURT

Addition u/s 40A(2) - excessive remuneration - whether the Revenue can tax the same income in the hands of the company on which the Directors had already paid the tax at the same rate at which the company would have been liable to be assessed? - Held that:- We may recall that consistently before Assessing Officer, CIT(Appeals) and Tribunal, the assessee had canvassed that all the four Directors who had received such remuneration, were taxed in the highest bracket of 30%; at the same rate at whic .....

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e hands of the Directors at the same rate at which; had it not been so distributed; would have been taxed in the hands of the company. In that view of the matter, the question of revenue neutrality would immediately arise. A certain income has already been taxed in the hands of the Directors. Permitting the Revenue to tax the same income again at the same rate in the hands of the principal payer would amount to double taxation. Only on this count, we answer question in favour of the appellant-as .....

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sum of ₹ 71,30,178/- out of the remuneration paid to four Directors of the company under Section 40A(2) of the Income Tax Act, 1961 ( the Act for short). Before the Assessing Officer, the assessee had taken two principal contentions. First was that the remuneration paid to the directors was commensurate with the service rendered by them and the same was in no manner excessive. According to the assessee, therefore, Section 40A(2) of the Act would not apply. The other contention of the asses .....

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t the rate of 30% but observed that the same would not justify unreasonably huge rise in remuneration. 3. The assessee carried the matter in appeal. CIT(Appeals) disposed of appeal by order dated 26.2.2013 in which he dismissed the assessee's ground regarding disallowance under Section 40A(2) of the Act. Regarding revenue neutrality; before the Appellate Commissioner the assessee had placed the further details in which it was pointed out that the against the disallowance of ₹ 71,30,178 .....

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tax liability than what was discharged by the Directors on the matching amount of remuneration. 4. The assessee carried the matter in further appeal before the Tribunal. The Tribunal by the impugned order limited the disallowance to ₹ 47,90,178/- deleting the rest. Before the Tribunal also, in addition to contending that higher remuneration to the Directors was justified, the assessee had canvassed that in any case, the tax having already been paid on such income by the Directors, the Reve .....

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ial question of law: (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law and in overlooking the fact that the entire exercise was revenue neutral in nature because the company as well as the Directors were taxable at the same rate and that the Directors had paid off the taxes and taking into consideration it ought not to have confirmed any part of the disallowance made by the authorities ? 6. We have heard learned counsel for the parties. The question of .....

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