TMI Blog2019 (1) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. Admittedly, this bonus is not out of the earlier years’ accumulated profits. Hence, we confirm the order of CIT(A) and this issue of Revenue is dismissed. - 269/Mum/15, 786/Mum/15 - - - Dated:- 27-11-2018 - Shri Mahavir Singh, Judicial Member And Shri Rajesh Kumar, Accountant Member For the Appellant : Shri D. Yogesh A. Thar, Shri Chaitanya D. Joshi, ARs For the Respondent : Shri Chaitanya Anjaria, Sr.AR, CIT ORDER PER MAHAVIR SINGH, JUDICIAL MEMBER: These two appeals filed by the Revenue as well as the assessee are directed against the order of the Commissioner of Income Tax(Appeals)-4, Mumbai. Revenue s appeal in ITA No. 269/Mum/2015: 2. The first issue in this appeal of Revenue is as regards the order of the CIT(A), deleting the disallowance of bonus payment paid by the assessee to Shri Suresh Prabhala. For this, Revenue has raised the following two grounds: 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the disallowance made by the AO on account of bonus paid by assessee to Shri Suresh Prabhala, holding that the bonus paid was in connection with his employment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of Special Bench of ITAT in the case of Dalal Broacha Stock Broking (P) Ltd., Vs. Addl. CIT [131 ITD 36], deleted the disallowance by observing in para 5.3.1.3.6 to 5.3.1.3.8 as under: 5.3.1.3.6 Having carefully and dispassionately considered the rival submissions and in view of the above, the second condition with respect to allowability of deduction under section 36(1)(ii) of the Act is also satisfied. Therefore, it is not a case covered by the decision of the Dalal Broacha Stock Broking Pvt. Ltd., Vs. ACIT (supra). Ld.AR has clearly distinguished facts of the present case from the facts recorded in the case of the said Dalal Broacha Stock Broking Pvt. Ltd., Vs. ACIT (supra) and which may be tabulated as under: Sr. No. Facs in the case of Dalal Broacha Facts in the case of the Appellant 1. Entire share capital of the company was held by the shareholder employees. All the shareholder employees held shares through out the year. Also, on the date the commission was paid to the employees, the employees were shareholders in the company. Entire share capital of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 is allowed . Aggrieved, now Revenue is in second appeal before the Tribunal. 4. We have heard rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that it is a fact that Shri Suresh Prabhala has acquired 500 equity shares of assessee-company as on 11-08-2008 but subsequently on 16-09-2008, transferred 4,999 equity shares to Mount Kellett Capital Management (Mauritius) Ltd., and one share to Mount Kellett HK Holdings LLC respectively. Assessee during the course of assessment proceedings before the AO and also before the CIT(A) during the appellate proceedings filed the details of transfer of equity shares by Shri Suresh Prabhala to Mount Kellett HK Holdings LLC. Assessee also filed copies of Form FC-TRS as filed with Reserve Bank of India for transfer of equity shares from Shri Suresh Prabhala to these two companies i.e., Mount Kellett Capital Management (Mauritius) Ltd., and Mount Kellett HK Holdings LLC. As on 16-09-2008, Shri Suresh Prabhala ceased to be shareholder of the assessee-company. Assessee-company has paid bonus to Shri Suresh Prabhala along with salary for the month of January, 2009 to 31-03-2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with therein, in computing the income referred to in section 28- (i) .. (ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission; 4.3. From the plain reading of the provisions of Section 36(1)(ii) of the Act, which provides that a sum paid to an employee as bonus or commission for services rendered by the employees should be allowable as deduction unless such amount or otherwise payable to employee as provided are dividend. According to us, the section allowed deduction if the expenditure is on account of bonus or commission paid to an employee and for services rendered. Such sum would not even otherwise payable as profit or dividend. Assessee being newly incorporated, had recruited employees from other organisations based on educational qualifications and based on experience of such employees, which we have already narrated above. It is a fact that assessee has agreed to pay bonus only to its employees for the year under consideration to their continued employment and Shri Suresh Prabhala rendered services for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 40(b) of the Act, 60% of the profits of business could be allowed as remuneration to the partners of the said entity. The assessee has furnished the details of directors' remuneration and commission paid to the directors and the total of the same does not exceeds 60% of the profits. Merely because the assessee is a private limited company and had agreed to pay the commission to the directors by passing Resolution in this regard before the close of year, the same cannot be brushed aside and the said expenditure was disallowed in the hands of assessee on mere surmises. On the other hand, remuneration paid to the same directors was allowed by the Assessing Officer and not disturbed by the CIT(A), which in turn establishes that the directors were working directors. We find no merit in the observations of CIT(A) in this regard. The assessee out of total profits of ₹ 93.48 lakhs available for appropriation, proposed dividend amounting to ₹ 1.90 lakhs only and the taxes on distributed profits were ₹ 0.30 lakhs. In view thereof, we hold that where the directors had given services and in recognition thereof, there was proposal to pay commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has relied upon a number of judicial pronouncements to support its contention. However, we do not consider it necessary to discuss those decisions for ruling in its favour. Therefore, this question is answered in favour of the assessee. 19. The learned Authorized Representative for the assessee has placed reliance on series of decisions. The Hon'ble Delhi High Court in AMD Metplast (P.) Ltd's case (supra) has laid down the ratio that where commission was paid as part and parcel of salary and TDS was deducted and where the director was liable to pay tax on both the salary and component in the commission, no disallowance was warranted under section 36(1)(ii) of the Act on the surmise that the dividend had to be paid to the shareholders in terms of the Companies Act. The Hon'ble High Court further held that dividend is a return on investment and not salary or part thereof. Herein, the consideration in the form of commission which was paid to Ashok Gupta was for services rendered by him as per the terms of appointment as a Managing Director. 20. Similar proposition has been laid down by the Hon'ble Delhi High Court in CIT v. Convertech Equipments (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd.'s case (supra) In view thereof, the reliance placed upon by the Revenue on ratio laid down by the Mumbai Special Bench of Tribunal in Dalal Broacha Stock Broking ((P) Ltd.'s case (supra) was held to be not correct, in view of the decision of Hon'ble High Court, which was binding on all the subordinate Courts and Tribunals working within the jurisdiction of such High Court. The decision of Mumbai Special Bench of Tribunal is not binding, in view of the ratio laid down by the Hon'ble Delhi High Court in series of decisions as referred to by us in the paras hereinabove and consequently, we find no merit in the reliance placed upon by the CIT(A). 23. In the totality of the above said facts and circumstances, we hold that the assessee is entitled to the claim of deduction on account of commission paid to the directors for the services rendered by them at ₹ 1 crore. Accordingly, we direct so. The grounds of appeal raised by the assessee are thus, allowed . 4.5. The assessee, before us has also made distinction between the facts of the assessee with the decision of Dalal Broacha Stock Broking (P) Ltd., Vs. Addl. CIT(supra), which is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time when the bonus was actually paid 4.6. In view of the above factual position that Shri Suresh Prabhala was not a shareholder when the bonus/commission was paid to him and once he is not a shareholder and commission/bonus paid for the services rendered, the provisions of Section 36(1)(ii) mandates that the bonus is to be allowed. Admittedly, this bonus is not out of the earlier years accumulated profits. Hence, we confirm the order of CIT(A) and this issue of Revenue is dismissed. 5. In the result, the appeal of Revenue is dismissed. Assessee s appeal in ITA No. 786/Mum/2015: 6. The next issue in assessee s appeal is as regards the order of the CIT(A) erred in not adjudicating the issue of granting of credit for tax deducted at source amounting to ₹1,31,32,183/-. For this, assessee has raised the following Ground No.1: Ground No. 1 Short credit of taxes deducted at source a) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals)-4 [CIT(A)] erred in not adjudicating on merits the Appellant s plea for granting of credit for taxes deducted at source amounting to ₹ 1,31,32,183 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11,81,58,470 1,33,87,358 Total: 31,32,72,262 3,54,93,756 7 Gross Receipts as per Profit and Loss Account 31,29,01,267 1 TDS Credit claimed as per computation of Total Income 3,54,51,714 60, 61 (para 2) Difference explained in Application u/s. 154 3,70,995 42,042 10. It was contended by the Ld. Counsel that same summary was given before the AO as well as before the CIT(A). Ld. Counsel stated that this issue is squarely covered in assessee s favour in the case of CIT Vs. Smt. Pushpa Vijoy [247 CTR 575] (Kerala), wherein the Hon'ble Kerala High Court was held that in view of the provisions of Section 199 of the Act, assessee is entitled to credit of tax based on TDS certificate in the assessment year in which income from which tax is deducted is assessed to tax and declared. The Hon'ble Kerala High Court considered this issue in para 11 and 12 as under: 11. The ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Rules serve a purpose because if income is not assessable in the assessment year and at the same time assessees are entitled to credit of tax recovered and remitted in respect of such income, the Department will be compelled to refund the entire tax amount every year and along with it if refund is not made within three months from filing of return, mandatory interest will also payable, as provided under Section 243(1) of the Income Tax Act which will defeat the purpose of TDS provisions in the Act. Therefore, we do not find any justification for the Tribunal to allow credit of tax based on TDS certificates without corresponding assessment of income in the assessment years concerned which is against the statutory provision. We also do not find any merit in the contention of the respondentsassessees that the amount covered by TDS certificates itself should be treated as income of the previous year relevant for the assessment year concerned and the tax amount should be assessed as income by simultaneously giving credit for the full amount of tax remitted by the payer. In these cases, the entire interest credited should be assessed on maturity of the deposit and on payment by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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