ACIT, CHENNAI V. True Value Homes (India) P Ltd., CHENNAI

ITA 464/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90284 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 06-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N NISCHAL IRS
• Assessee Lawyers: G GOPALAN RETIRED
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! , ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A. NO.464/MDS/2015 ( / ASSESSMENT YEAR : 2010-2011) THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE - 3(1) CHENNAI 600 034. ( %& /APPELLANT) VS M/S. TRUE VALUE HOMES (INDIA) P. LTD, NO.21, TVH TRIVENI, C.V. RAMAN ROAD, ALWARPET, CHENNAI 600 018. [PAN:AAACT 7955Q] ( '(%& /RESPONDENT) / APPELLANT BY : SHRI. N. NISCHAL, IRS, JCIT. / RESPONDENT BY : SHRI. G. GOPALAN, RETIRED JCIT. /DATE OF HEARING : 08.04.2015. ! /DATE OF PRONOUNCEMENT : 08.04.2015. ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTE D AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENN AI, DATED 23.10.2014. THE REVENUE HAS RAISED THE FOLLOWING G ROUND:- I.T.A.NO.464/MDS/2015 :- 2 -: 2. THE LEARNED CIT(A) HAS ERRED IN DELETING THE DI SALLOWANCE U/S.36(1) (II) BEING COMMISSION OF C2,66,41,878/- P AID TO THE MANAGING DIRETOR OF THE ASSESSEE COMPANY . 2. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE ARE OF THE OPINION THAT A SIMILAR ISSUE HAS COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1093/MDS/2011 VIDE ORDER DATED 18.03.2013, WHER EIN THE TRIBUNAL HELD AS UNDER:- 5. WE HEARD BOTH SIDES IN DETAIL ON THIS POINT. T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS CONSIDERED THE LEGAL IMPLICATION OF THE RELEVANT PROVISION WHILE D EALING WITH THE ISSUE. IN THE PRESENT CASE, THE ASSESSEE HAS P AID A COMMISSION OF ` 4,83,59,772/- TO ITS MANAGING DIRECTOR. THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED TH AT SECTION 36 OF THE INCOME-TAX ACT, 1961 PROVIDES FOR OTHER DEDUCTIONS IN COMPUTING THE BUSINESS INCOME OF AN A SSESSEE. DIFFERENT ITEMS OF SUCH EXPENSES ARE ENUMERATED UND ER DIFFERENT CLAUSES PROVIDED IN SUB-SECTION(1) OF SEC TION 36. ONE OF SUCH EXPENDITURE ENTITLED TO BE DEDUCTED IN COMPUTING THE BUSINESS INCOME OF AN ASSESSEE IS ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDER ED. BUT THE DEDUCTION IS NOT AVAILABLE IN A CASE WHERE SUCH PAYMENT OF BONUS OR COMMISSION WOULD NOT HAVE BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF SUCH AMOUNT OF BONUS OR C OMMISSION WAS NOT PAID. IT MEANS THAT IF THE EMPLOYEE IS ENT ITLED FOR PROFITS OR DIVIDEND OF THE ASSESSEE, THEN THE SUMS PAID TO SUCH EMPLOYEE SHALL NOT BE ALLOWED AS A DEDUCTION I N THE HANDS OF THE ASSESSEE. 6. IN THE LIGHT OF THE ABOVE LAW, THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT THERE ARE THREE L IMBS TO SECTION 36(1)(II). THOSE LIMBS ARE: (A) THE SUM IS PAID TO AN EMPLOYEE (B) THE SUM PAID IS IN THE NATURE OF BONUS OR COMMISSION (C) THE SUM PAID IS OTHERWISE PAYABLE AS PROFIT OR I.T.A.NO.464/MDS/2015 :- 3 -: DIVIDEND TO THE RECIPIENT. 7. IN THE LIGHT OF THE EXPOSITION OF LAW, THE COMMI SSIONER OF INCOME-TAX(APPEALS) EXAMINED WHETHER SHRI RAVICHAND RAN, THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY, IS AN EM PLOYEE OF THE ASSESSEE OR NOT. HE FOUND THAT SHRI RAVICHANDR AN, WHO IS THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY, IS N OT AN EMPLOYEE OF THE ASSESSEE. HE IS THE MANAGING DIREC TOR OF THE ASSESSEE-COMPANY VIS-A-VIS A PERMANENT DIRECTOR. THERE IS NO EMPLOYEE-EMPLOYER RELATIONSHIP BETWEEN SHRI RAVI CHANDRAN AND THE ASSESSEE COMPANY. SHRI RAVICHANDRAN HOLDS 95% OF THE SHARES OF THE ASSESSEE-COMPANY. HE IS NOT AN E MPLOYEE UNDER ANY OF THE FOLLOWING ACTS MEANT FOR THE WELFA RE OF LABOUR: (A) PAYMENT OF BONUS ACT (B) PAYMENT OF GRATUITY ACT (C) WORKMENS COMPENSATION ACT (D) EMPLOYEES PF ACT (E) EMPLOYEES STATE INSURANCE ACT. 8. THEREFORE, THE COMMISSIONER OF INCOME-TAX(APPEAL S) CONCLUDED THAT SECTION 36(1)(II) IS NOT APPLICABLE TO THE PAYMENT MADE BY THE ASSESSEE TO ITS MANAGING DIRECTOR. THE COMMISSIONER OF INCOME-TAX(APPEALS) FURTHER, RELYIN G ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GESTENER DUPLICATORS(P) LTD. VS. CIT, 117 ITR 1, HELD THAT T HE COMMISSION PAID TO SHRI RAVICHANDRAN, THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY, IS PART OF THE SALARY. TH E ONLY THING IS THAT THE COMMISSION HAS BEEN PAID ON THE BASIS O F THE TURNOVER; BUT STILL THE PAYMENT WAS IN THE NATURE O F SALARY FOR SERVICES RENDERED BY SHRI RAVICHANDRAN. THE COMMIS SIONER OF INCOME-TAX(APPEALS) ALSO HELD THAT THERE IS NO FORC E IN THE ARGUMENT OF THE ASSESSING OFFICER THAT NO MARKETING EFFORTS ARE NECESSARY TO SELL THE FLATS CONSTRUCTED BY THE ASSE SSEE, AS THE ASSESSEE-COMPANY ENJOYS A VERY FAMOUS BRAND-NAME. THE COMMISSIONER OF INCOME-TAX(APPEALS) CONCLUDED THAT THIS FINDING IS WITHOUT ANY BASIS. HE OBSERVED THAT EVE N FAMOUS COMPANIES HAVING VALUABLE BRAND-NAMES HAVE TO INCUR HUGE EXPENDITURE FOR MARKETING AND THERE IS NO REASON TO HOLD THAT THE ASSESSEE WOULD GET BUSINESS WITHOUT ANY MARKETI NG EFFORTS. 9. IN THE LIGHT OF THE ABOVE FINDINGS, HE HELD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED AND ACCORDINGLY DELETED THE ADDITION OF ` 4,83,59,772/-. I.T.A.NO.464/MDS/2015 :- 4 -: 3. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, TAKING CONSISTENT VIEW, WE ARE INCLINED TO DISMISS THE APPEAL OF THE REVENUE. 4. IN THE RESULT, APPEAL FILED BY THE REVENUE IN ITA NO.464/MDS/2015 IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 8TH OF APRIL, 2 015, AT CHENNAI. SD/- SD/- ( . ! ) V. DURGA RAO ' / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER '# /CHENNAI. $% /DATED:08 .04.2015. KV %& '( )( /COPY TO: 1. * APPELLANT 2. / RESPONDENT 3. + ( )/CIT(A) 4. + /CIT 5. (,- . /DR 6. -/ 0 /GF.