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TMI Blog2018 (10) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... T services. During the course of scrutiny proceedings, the AO observed from the financial statements that the auditor has commented on the managerial remuneration which was excessively claimed by the assessee company. The auditor's comment is as under :- "attention is drawn to note 1(b) of Schedule 17 where it is mentioned that the Company was set up as a subsidiary of G4S Holding India Limited, a private company incorporated in U.K. with G4S Plc. UK becoming holding company with effect from 8 July 2008. The remaining shares of the Company were being held by G4S Corporate Services (India) Pvt. Ltd. a subsidiary of the holding company until 14 March, 2010. The share so held were transferred to Group 4 Falck Finance PV Netherlands, on 15 March, 2010. The Company contends that the provisions of sub section (7) of Section 4 of the Companies Act 1956 did not get attracted until 8 July 2008, as the majority shareholders of the Company is held by G4S Holding India Ltd. which if incorporated in India would be a private limited company and therefore believes that such provisions were applicable for the period 8 July, 2008 to 14 March 2010. However, in our opinion, the provisions of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of remuneration was not as per section 4(7) of the Companies Act, 1956. The Ld. AO observed that the holding company is a foreign company which is not incorporated in India and the status of subsidiary company which is incorporated in India shall be deemed public Limited company irrespective of the fact that interest of public is not substantially involved in that company. He also examined the share holding pattern of the company and as per section 4(7) of the companies Act held that the assessee is a deemed public limited company and as per actual status of the assessee company the benefits provided for a private limited company cannot be allowed to the assessee company. The share holding pattern in the company is as under. Company Name Shareholding upto 14-03- 2010 (equity share of Rs. 10 each) % of Share Holding Shareholding from 15.3.2010 to 31.3.2010 (equity share of Rs. 10 each) % of share holding G4S Holding India Limited (formerly known as Group 4 Flack Investments Ltd.), Jersey 25000 0.71% 25000 0.71% G4S Corporate Services (India) Pvt. Ltd. 10 0.00% G4S Plc, UK 3497800 99.29% 3497800 99.29% G4S India Holdings (NL) BV (formerly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon the order of the AO and submitted that the assessee has not followed the Accounting Standard 9 on revenue recognition issued by the Institute of Chartered Accountant of India. The company is bound to follow the Accounting Standard which are applicable in the relevant year. Therefore the finding of the AO should be restored. 8. On the other hand Ld. AR reiterated the submissions made before the Ld. CIT(A) and further submitted that on the similar facts and circumstances in the case of sister concern, the ground No. 1 has been allowed by the coordinate bench of the Tribunal in ITA No. 2086/Del/2014 for asstt. year 2010-11 vide order dated 28.11.2016 and further in respect of ground No. 2, Ld. AR of the assessee submitted that the same amount of Rs. 55,28,763/- had been considered while finalising income tax return for the assessment year 2009-10. Therefore the double addition is not warranted. Ld. CIT(A) has rightly discussed this issue in detail in his order and accordingly allowed the appeal of the assessee. 9. After hearing both the sides and the material available on record, we observe that the issue involved in ground No.1 has been decided by co-ordinate Bench of Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due date as per those statutes. However, even in case of the same, it was held that by the Delhi High Court in the case of CIT Vs Aimil Ltd. and others (2007) 229 CTR (Del) 418 and the Supreme Court of India in the case of CIT Vs Alom Extrusions Ltd. (2009) 227 CTR (SC) 470 that such disallowance cannot be made where such contribution was not paid within the due date prescribed under the ESI and the PF Acts, if the payment has been made within the due date of filing the return of income. It is evidently clear that there is no specific provision under the Act which requires the managerial remuneration to be approved by the Central Government, in order to be allowed under the provisions of Section 37(1) and such claim has to pass through the commercial tests of business expediency and the condition laid down u/s 37(1). 6.4 In the case of the appellant, it is undisputed that the appellant's income was shown under the head "Profits and gains of business or profession" and has been accepted by the AO as such without any difference of opinion. Therefore, the most important factor for allowing the claim is to see if the conditions prescribed u/s 37(1) are satisfied. The provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances, the action of the Ld. AO of disallowing the managerial remuneration by deeming the appellant company as a Public Limited Company, based only on the observations made by the auditors in the notes to accounts, lacks the required legal force. 6.5 Moreover, in view of the settled legal position that the AO cannot sit in the , shoes of the businessman, the Ld. AO had no locus standii to hold that the appellant ought not to have increased the managerial remuneration. In view of the facts of the case, as evidenced by the terms of agreement of the appellant with its clients, it is evident that the appellant was to get 10% mark-up on the net expenses incurred by it. During the year as against the net expenses of Rs. 8,63,80,173, the appellant had earned an. amount of Rs. 85,83,597 towards the 10% mark-up charges. Therefore, even though the appellant may have paid additional managerial remuneration of an amount of Rs. 1,54,04,980 to its directors, its income has increased by 10% of the same amount. Accordingly, if comprehensively taken, the appellant's income has increased commensurately by increasing managerial remuneration and even the revenue stands benefited by such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 4(7) of the company Act, 1956 read as under: "(7) A private company, being a subsidiary of body corporate incorporated outside India, if incorporated in India, would be a public company within the meaning of this. Act, shall be deemed for the purpose of this Act to be a subsidiary of a public company, if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India." On a harmonious interpretation of the provision of said Sub-Section (7), it is evident that the said provision provide for deeming a private company being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India would have been a public company, as a subsidiary of the public company. However, from the preview of this Sub-Section (7), those private companies are excluded in whose case the entire share capital is not held by their holding company incorporated outside India, (whether alone or together with other companies incorporated outside India). Thus from the purview of Sub- Section (7), only those private subsidiary companies are exempted, in whose cases the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable to the directors of a company, including any managing or whole-time director, shall be determined, in accordance with and subject to the provisions of section 198 and this section, either by the articles of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting [and the remuneration payable to any such director determined as aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity: Provided that any remuneration for services rendered by any such director in any other capacity shall not be so included if- (a) The services rendered are of a professional nature, and (b) In the opinion of the Central Government, the director possesses the requisite qualifications for the practice of the profession] (2) A director may receive remuneration by way of a fee for each meeting of the Board, or a committee thereof, attended by him: Provided that where immediately before the commencement of the Companies (Amendment) Act, 1960, fees for meeting of the Board and any committee thereof, attended by a director are paid on a monthly basis, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 198(4) provide for a remedy where the profits of the company are inadequate, and allow the Central Government to approve removal of the prohibition on the company to pay to its directors in spite of the same on satisfaction of conditions prescribed under Schedule-XIII. Further, the provisions of Section 309(3) of the Companies Act, 1956 provide for payment to a director or a managing director more than the prescribed ceiling, on approval by Central Government. Where such remedies are not availed or granted, the Companies Act, 1956 also provides for a general penalty provision u/s 629A, under circumstances, where a company or any other person contravenes any provision of the Companies Act or any condition, limitation, restriction subject to which any approval, sanction, consent, etc has been accorded, and in such a case, such a company or a person is liable to be punished with a fine of Rs. 5000 and in case of continuing default, the penalty may extend to Rs. 500 for every day of the default. As the Companies Act, 1956 is a separate statute, it has separate remedial and penal provisions, therefore, if any compliance thereto has not been made, the corresponding remedy or the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Ld. CIT(A) are as under :- "8.2.1. It was noticed by the AO that the auditor had commented adversely on the appellant's treatment in recognizing the service income in respect of one of its customers amounting to Rs. 55,28,763/- in the year ending on 31.03.2009. As per the auditor since the accounting standard 9 on revenue recognition had not been followed by the appellant in the year ending 31.03.2009, its consequential effect on the case results for the year ending 31.03.2010 are also affected. The auditor has categorically held that in AY 2009-10, the appellant has shown service income more by Rs. 55,28.763/-, which was not as per AS-9. Had the appellant followed the accounting standard in respect of revenue recognition, the income for AY 31.03.2009 should have been reduced by Rs. 55,28,763/- and it would have resulted in increase of loss after tax in that year by Rs. 70,52,578/- and correspondingly, sundry debtors should have been lowered by similar amount of Rs. 70,57,578/-. The effect of such adjustment during the year would have been the decrease in loss after tax at Rs. 55,28,763/- and corresponding adjustment of bad debts of Rs. 46,73,036/- written off by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , loss has been claimed by the appellant. Therefore, no fruitful purpose will be served if such exercise is done in the appellant's case. The Hon'ble Jurisdictional High Court in the case of CIT vs. M/s Triveni Engineering Industries Ltd. 336 ITR 374 (Del) has time and again upheld that if the rates of taxation are uniform, it does not make a difference if a portion of income is taxed in either of the years as such exercise becomes revenue neutral. In appellant's case, the position is even in the favour of the appellant if such exercise of bifurcation of income is made. In my considered view, there is no need of doing such exercise and the results shown by the appellant should be treated as perfectly in order. Therefore, the AO's action in making the addition of Rs. 55,28,763/- is not justified and the same is directed to be deleted. The appeal on this issue is allowed." 11. From the above order of the Ld. CIT(A) it is clear that the assessee had offered its income in the financial year 2009-10. Therefore the double taxation for the same issue is not justified. Ld. CIT(A) has rightly deleted the additions. We, therefore, find no infirmity in the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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