M/s BOTIL Oil Tools (India) Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 2281/DEL/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81600 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 05-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 27-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MANOJ KUMAR CHOPRA
• Section: 37(1); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI J.S. REDDY , ACCOUNTANT MEMBER IT A NO . 3821 / DEL / 20 08 ( A . Y . 200 4 - 05 ) ACIT, CIRCLE - 3(1), VS. M/S BOTIL OIL TOOLS(INDIA) PVT. LTD. NE W DELHI 4 TH FLOOR, MOHTA BUILDING, 4, BHIKAJI CAMA PLACE, NEW DELHI. ITA NO.2281 /DEL/ 2009 (A.Y. 2005 - 06) M/S BOTIL OIL TOOLS(INDIA) PVT. LTD. VS. ACIT, CIRCLE 3(1), 4 TH FLOOR, MOHTA BUILDING, 4, NEW DELHI. BHIKAJI CAMA PLACE, NEW DEL HI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANOJ KUMAR CHOPRA, SR. D.R. RESPONDENT BY : S HRI ANIL BHALLA, C.A. ORDER PER J.S. REDDY , A . M : 1. THESE APPEAL S FILED BY THE REVENUE ARE DIRECTED A GAINST THE ORDER S OF LD. COMMISSIONER OF INCOME TAX (APPEALS) - X VIII, NEW DELHI DATED 14 . 10 .20 08 FOR THE A.Y. 200 4 - 05 AND LD . COMMISSIONER OF INCOME TAX (APPEALS) - VI, NEW DELHI DATED 03.03.2009 FOR THE A.Y. 2005 - 06 . ITA NO. 3821 /DEL/20 08 ITA NO.2281 /DEL/ 2009 2 2. FACTS IN BRIEF: THE ASSESSEE IS A CO MPANY WHICH IS ENGAGED IN THE MANUFACTURER OF OIL FIELD DRILLING AND PRODUCTION EQUIPMENT , WHICH ARE USED FOR DRILLING WELLS AND TO PULL OUT OIL FROM THE WELLS. 3. THE FACTS OF THE ISSUE BEFORE US ARE BROUGHT OUT AT PARAS 3 & 4 OF THE ASSESSMENT ORDER , W HICH IS EXTRACTED FOR READY REFERENCE: - COMMISSION PAID: DURING THE YEAR THE ASSESSEE HAS PAID COMMISSION OF RS.52,22,514/ - TO THE DIRECTORS WHO WE ALSO SHAREHOLDERS OF THE ASSESSEE COMPANY. THE DETAILS OF THE SAME AS SEEN FROM THE CLAUSE 8(B) OF THE AU DITORS REPORT AND ANNEXURE VII OF CLAUSE 18 OF 3CD REPORT AS UNDER: SH. H.L. KHUSHALANI RS.32,64,071 SH. VIVEK KHUSHALANI RS.13,05,628 SH. RAKSHA WALIA RS. 6,52,814 TOTAL RS.52,22,514 T HE ASSE S SEE C O MPAN Y WA S ASKE D T O EX P LAIN VI D E Q UE S TI O NN A IR E D A T E D 0 1.09 . 06 W H Y THE A B OVE CO MMISSION PAID TO TH E DIRE C T O R S WH O WERE A L S O TH E S H A R E H O LD E R S O F TH E CO MP A N Y S H O UL D N O T B E D IS A L L O WED A S PER S E CTI O N 3 6 ( I )(I I ) O F ' 1 . T . AC T , 1961 . THE A S SESSEE VID E S UBMI S S ION D A T E D 06. 1 2. 06 S TATED A S UNDER : THE COMMISSION WAS PAID A S P E R THE SEE 309 R W . S J 9 8 A N D SC H E DUL E XIII OF TH E C OMPANI ES ACT 1956 AND THE PROVISIONS OF S EC T I ON 36( 1 )(I I ) AR E N O T ATTRA C T E D T O TH E S AID COMMISSION . W E THEREFORE SUBMIT THAT TH E COMMI SS ION PAID TO DIR EC T O R S WHI C H I S P ART OF TH E T E RM S OF AP POINTMENT ARE FULL Y ALLO W ABL E U / S 3 7( 1 ) OF I.T . A C T 1 9 61 . TH E S UBM ISS I O N S FIL E D B Y T H E AS S ESSEE CO MPAN Y WERE C O NS ID E R ED A N D FO U ND N O T TENABLE. THE C O MMI SS ION P A ID B Y THE ASSE SS EE CO M PAN Y CA NN OT BE C O NS IDER ED AS A PA R T OF THE SALARY O R REMUN E RATI O N . A FTE R CO N S ID E RIN G T HE FAC T S AND CIRC UM S T A N CES O F T H E CASE, I T I S CO N SIDERED THAT THE S E PA Y M E NT S H AVE BEE N P A ID ITA NO. 3821 /DEL/20 08 ITA NO.2281 /DEL/ 2009 3 T O THE PE R S O N S W H O H AVE VE S T E D INTE R E S T , T O R ED U CE TH E N E T PROFITS AND T O AVOID TAX LIABILIT Y. SECTI O N 3 6 (1 ) (II ) OF TH E I . T . AC T 1 961 C L EA RL Y T A LK S A B O U T THE CONDITION S LAID FOR THE ALLOWABILIT Y OF C O MMI SS ION A ND B O NU S PA Y MENT S . T HE S AM E I S R E PR O DU CED AS UNDER : '36. OTHER DEDUCTIONS. 36(1)(II) ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE BEE N PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION; AS SEEN FROM TH E ABOVE SECTION, COMMIS S I O N I S ALL O W E D O NL Y WH E N THE SA ME W O ULD N O T HA VE B EE PAYABLE AS PROFITS OR DIVIDEND . THI S MEAN S AN Y COMMIS S I O N PAID T O TH E S HARE H O LDERS FORM S PART OF THE PROFITS OR DIVIDENDS OF THE C OMPAN Y AND H E N CE N O T ALL O W A BL E . S INC E IN THE CAS E OF TH E ASSESSEE COMPANY , THE ' SUM PAID A S COMMISSION T O TH E S H A R E H O LD E R S FO RM S PART O F PR OFI T S O R DIVIDEND PAYABLE , THE S AME CANN O T B E A LL OWED AS DED U C TI O N T O TH E A SSE S SEE CO MPAN Y. T H E R EF O RE, TH E COMMISSION AM O UNTIN G T O R S .5 2,22 , 5 1 4 / - I S D I SA LL OWED A ND AD D E D T O THE T O T AL I N COME DECLARED B Y THE A SS E SS EE . (DISALLOWANCE : RS.52,22,514) 4 . THE FIRST APPELLATE AUTHORITY AT PAGES 4 & 5 AT PARA S 5 & 6 HELD ARE AS FOLLOWS: - 5) I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE APPELLANT . SECTION 36(1 )(II) OF THE ACT PROVIDES AS UNDER : '36(1 )(II) ANY SUM PAID T O AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SU CH SUM WOULD NOT HAVE BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION . ' 6) IT WILL BE SEEN THAT, SECTION 36(1 )(II) OF THE ACT PROVIDES THAT 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 HAS NOT BEEN PAID AS BONUS OR COMMISSION, THE SAME IS AN ALLOWABLE DEDUCTION. IN OTHER WORDS , SECTION 36(1)(II) OF THE ACT SEEKS TO PROVIDE THAT COMMISSION PAID TO AN EMPLOYEE IS AN ALLOWABLE DEDUCTION PAID TO AN EMPLOYEE IS AN ALLOWABLE DEDUCTION UNLESS AND UNTIL SUCH SUM WOULD NOT HAVE BEEN PAYABLE AS PROFITS OR DIVIDEND. IN THE INSTANT CASE, THE APPELLANT COMPANY PAID REMUNERATION TO THE DIRECTORS OF THE COMPANY AND AS SUCH, THE MINISTERIAL REMUNERATION IS ITA NO. 3821 /DEL/20 08 ITA NO.2281 /DEL/ 2009 4 IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER IN THE ORDER HAS NOT ESTABLISHED THAT, SUCH COMMISSION PAID TO SHAREHOLDERS WAS PAYABLE AS PROFITS OR DIVIDEND OF THE COMPANY. SINCE SUCH SUM WAS NOT PAYABLE TO TH E SHAREHOLDERS OR DIRECTORS AS PROFITS OR DIVIDEND OF THE COMPANY, THE DEDUCTION CLAIMED BY THE COMPANY IN RESPECT OF REMUNERATION PAID OF RS. 52,22,514/ - IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT . HENCE DISALLOWANCE SO MADE IS DELETED. 5 . AGGRIEVED T HE REVENUE IS IN APPEAL ON THE FOLLOWING GROUNDS: - IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.5222514/ - MADE BY THE AO AS PAID TO DIRECTORS OF THE COMPANY AS COMMISSION EVEN THO UGH IT WAS NOT AN ALLOWABLE EXPENDITURE WITHIN THE MEANING OF SECTION 36(1)(II) AS WELL AS SECTION 37(1) OF THE I.T. ACT, 1961. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME B EFORE OR DURING THE HEARING OF THIS APPEAL. 6 . WE HAVE HEARD SHRI MANOJ KUMAR CHOPRA, LD. SR. DEPARTMENTAL REPRESENTATIVE ON BEHALF OF THE REVENUE AND SHRI ANIL BHALLA LD. COUNSEL ON BEHALF OF THE ASSESSEE. 7 . ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAWS CITED, WE HOLD AS FOLLOWS. 8 . AS PER THE PROPOSITION LAID DOWN BY THE JURISDICTIONAL HIGH COURT, IN THE CASE OF METAPLAST P. LTD. V S. DCIT 341 ITR 563 (DELHI) , SECTION 36(1)( II ) IS NOT ATTRACTED ITA NO. 3821 /DEL/20 08 ITA NO.2281 /DEL/ 2009 5 IF THE PAYMENT OF COMMISSION IS PART OF SALARY PAID BY THE COMPANY IN TERMS OF THE APPOINTMENT ORDER, WHICH IS APPROVED AT THE A NNUAL GENERAL MEETING . 9 . IN THE CASE OF ON E HAND, THE COMMISSIO N IN QUESTION IS PAID AS PER THE TERMS OF APPOINTMENT AND HAS BEEN APPROVED AT THE ANNUAL GENERAL MEETING OF THE COMPANY HELD ON 15.09.2004. THE ANNUAL GENERAL MEETING APPROVED THE REMUNERATION PACKAGE OF (1) MR. H.L. KHUSHALANI (2) MR. VIVEK KHUSHALANI AN D (3) MRS. RAKSHA WALIA W.E.F. 01.04.2004. 10 . THE APPROVAL WAS GRANTED IN ACCORDANCE WITH THE PROVISION S OF SECTIONS 198, 269, 309, 310 AND SCHEDULE XIII OF THE COMPANIES ACT 1956. 11 . PERUSAL OF THE RESOLUTION DEMONSTRATE THAT THE COMMISSION IN QUESTION IS NOTHING BUT ANOTHER FOR M OF SALARY WHICH IS PAID FOR SERVICE RENDERED. THUS, THE ORDER OF THE LD. CIT(A) HAS TO BE UPHELD. 1 2 . THE ISSUE IS ALSO COVERED IN THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT - 1 VS. CONVERTECH EQUIPMENTS PV T. LTD - 2012 - TIOL - 1002 - HC - DEL - IT WHERE IT IS HELD AS FOLLOWS: - MOREOVER, A DIVISION BENCH OF THIS COURT IN METAPLAST PVT. LTD. V. DCIT, (2012) 341 ITR 563, AFTER REFERRING TO THE JUDGMENT OF THE BOMBAY HIGH COURT IN LOYAL MOTORS SERVICES COMPANY LTD. V. CIT, (1946) 14 ITR 647 OPINED THAT THE COMMISSION, IF FOUND TO BE PAID FOR SERVICES RENDERED BY THE DIRECTOR AS PER THE TERMS OF THE APPOINTMENT, CANNOT BE SAID TO BE DISTRIBUTION OF DIVIDEND OR PROFITS IN THE GUISE OF COMMISSION. IT WAS NOTICED WHILE COM MISSION WAS PAID AS A FORM OF REMUNERATION FOR ACTUAL SERVICES RENDERED, DIVIDEND IS A RETURN OF INVESTMENT AND IS PAID TO ALL ITS SHAREHOLDERS EQUALLY. IT WAS THUS HELD ITA NO. 3821 /DEL/20 08 ITA NO.2281 /DEL/ 2009 6 THAT IF THE COMMISSION IS PAID FOR ACTUAL SERVICES RENDERED, SECTION 36(1)(II) WILL NO T APPLY. 1 3 . THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S DALAL BROACHA STOCK BROKING PVT. LTD. IN ITA NO.5792/MUM/2009 ORDER DATED 22.06.2011. 1 4 . A S WE HAVE APPLIED THE BINDING DECIS ION OF THE JURISDICTIONAL HIGH COURT TO THE FACTS OF THE CASE, WE NEED NOT CONSIDER THE DECISION OF THE MUMBAI S PECIAL BENCH ON THE ISSUE. 15 . OTHER OBJECTION RAISED BY THE LD. D.R. IS THAT BOARD RESOLUTION WAS NOT AVAILABLE FOR THE A.Y. 2005 - 06 . C OPY OF T HE RESOLUTION IS PRODUCED BEFORE US . HENCE , THIS OBJECTION IS NOT SUSTAINABLE. 16 . THE ISSUES ARE THE SAME FOR BOTH THE ASSESSMENT YEARS AND HENCE WE UPHELD THE ORDER OF THE LD. CIT(A) FOR BOTH THE ASSESSMENT YEAR . 17 . IN VIEW OF ABOVE DISCUSSION, WE DISM ISS BOTH THE APPEALS. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 29 .0 8 .2014 SD/ - SD/ - ( DIVA SINGH ) ( J.S. REDDY ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 29 .0 8 .2014 A KS* ITA NO. 3821 /DEL/20 08 ITA NO.2281 /DEL/ 2009 7 COPY OF THE ORDER FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ASSISTANT REGISTRAR