Appeal details
Counselvise Citation
[2020] 111 COUNSELVISE.COM (IT) 4158 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 5 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-02-2020
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Assessment Year
2012-2013
Appeal Filed On
01-09-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA. NO.4687/DEL/2016 ASSESSMENT YEAR 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), NEW DELHI. V. M/S. ABRO TECHNOLOGIES PVT. LTD., 109, DSIDC SHED, OKHLA INDUSTRIAL COMPLEX, NEW OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI. TAN/PAN: AAACA0390E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI DIVYANSHU AGARWAL, ADV. & SHRI AKARSH GARG, ADV. RESPONDENT BY: SHRI RAJESH KUMAR, SR.D.R. DATE OF HEARING: 18 02 2020 DATE OF PRONOUNCEMENT: 25 02 2020 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 08.06.2016 PASSED BY LD. CIT(A)-I, NEW DELHI FOR THE QUANTUM OF ASSESSMENT P ASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUNDS :- 1. THE LD CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETING DISALLOWANCE OF RS.1,92,80,954/- BEING COMMISSION O N SALES PAID TO THE SHAREHOLDER DIRECTOR(S). 2 THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT THE ITA NO.4687/DEL/2016 2 SHAREHOLDER DIRECTOR WAS ENTITLED TO DIVIDEND IN VI EW OF ACCUMULATED PROFIT AVAILABLE AND THE COMMISSION SO PAID IS CLEARLY PROHIBITED BY THE PROVISIONS OF SECTION 36( L)(II) OF INCOME TAX ACT, 1961. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOFTWAR E SOPHISTICATED DYNAMIC BALANCING EQUIPMENT DIFFERENT IN SIZES AND PERFORMANCE CAPABILITIES. LD. ASSESSING OFFICER FROM THE PERUSAL OF THE TAX AUDIT REPORT, NOTED THAT ASSESSE E HAS PAID COMMISSION TO ITS DIRECTORS FOR SUMS AGGREGATING TO RS.1,92,80,954/-. LD. ASSESSING OFFICER HELD THAT I N VIEW OF SAID PROVISION OF SECTION 36(1)(II), EMPLOYEES WHO WOULD OTHERWISE BE ENTITLED TO RECEIVE PROFIT OR DIVIDEND BY VIRTUE OF THEIR SHAREHOLDING AND THE COMPANY HAS ACCUMULATED PROFITS, THEN THE PRACTICE OF GIVING BONUS OR COMMISSION CAN NOT BE ALLOWED. HE NOTED THAT COMPANY HAS RESERVES AND SUR PLUS OF RS.3,95,74,613/-. ACCORDINGLY, HE MADE THE DISALLOW ANCE OF ENTIRE COMMISSION PAID TO THE DIRECTORS. 3. BEFORE THE LD. CIT(A), IT WAS EXPLAINED THAT T HE COMMISSION PAID TO THE DIRECTORS WAS BASED ON PERCE NTAGE OF SALES TURNOVER AND SAME WAS APPROVED BY THE BOARD O F DIRECTORS THAT IN ACCORDANCE WITH SCHEDULE-V OF THE COMPANIES ACT, 1956, THE REMUNERATION PAID TO THE D IRECTORS WERE AS UNDER:- COMMISSION TO SHRI ATUL NATH: 3% ON THE TOTAL SALES INCLUDING SERVICES AND 10% ON EXPORT SALES. ITA NO.4687/DEL/2016 3 COMMISSION TO SHRI AKHIL NATH: 0.5% ON THE TOTAL SA LES INCLUDING SERVICES AND 5% ON EXPORT SALES. COMMISSION TO SHRI ASHISH NATH: 0.5% ON THE TOTAL S ALES INCLUDING SERVICES AND 5% ON EXPORT SALES. FURTHER, COPY OF AGREEMENT ENTERED INTO BY THE ASSE SSEE COMPANY WITH DIRECTORS ON 1 ST DECEMBER, 2006 WHEREIN FOLLOWING FUNCTIONS WERE TO BE PERFORMED BY THE DIR ECTORS:- DEVELOPMENT OF BUSINESS TO ACHIEVE THE GROWTH, SUST AINABILITY AND SMOOTH RUNNING. DESIGNING OF THE MACHINERY ACCORDING TO CUSTOMER RE QUIREMENT ARE MOST ECONOMICAL FUNCTION TO PERFORM SMOOTH RUNN ING AND SUCCESSFUL IMPLEMENTATION OF ORGANISATION. DEVELOP THE MARKET BASE AND CUSTOMER BASE. DEVELOP THE INDIAN AS WELL AS OVERSEAS MARKET TO IN CREASE THE TURNOVER OF THE COMPANY. DEVELOPMENT OF PUBLIC RELATIONS FOR INCREASE THE VI SIBILITY OF COMPANY IN PUBLIC AT LARGE. CONDUCT THE SEMINAR ON BALANCING MACHINE ON BEHALF OF COMPANY. CONDUCT RESEARCH ON DEVELOPMENT OF BUSINESS AND PRO DUCTS. PROMOTE THE SUCCESS OF THE COMPANY FOR THE BENEFIT OF ITS MEMBERS. SUPERVISOR OF OFFICE STAFF AND TECHNICAL ASSISTANCE (INCLUDING CONDUCTING STAFF EVALUATIONS) IN LIEU OF SAID DUTIES AND FUNCTIONS ASSESSEE-COMPA NY HAD AGREED TO PAY, ADDITIONAL COMPENSATION APART FROM T HEIR ITA NO.4687/DEL/2016 4 REGULAR COMPENSATION, BASED ON TURNOVER IN THE FOLL OWING MANNER:- STARTING FROM FINANCIAL YEAR 2006-07 TILL THE SERV ICE RENDERED BY THE DIRECTOR, THE FULL TIME WORKING TECHNICAL DI RECTOR SHALL BE PAID A COMMISSION BASED ON SALES TURNOVER AS WELL A S EXPORT TURNOVER WITH A PREDEFINED CONDITION OF ACHIEVING S ALES TURNOVER. INITIALLY COMPANY AGREED TO PAY THE COMMISSION AT T HE RATE OF 1% OF THE SATES AND 10% OF EXPORT TURNOVER. FURTHER THE COMMISSION WILL BE INCREASED IF THE COMPANY SUCCESS FULLY ACHIEVE TOTAL TURNOVER OF RS. 10 CRORE WITHIN 2 YEA RS, RS.20 CRORE WITHIN 4 YEARS AND RS.30 CRORE WITHIN 6 YEARS TO PRESENT YEAR THAN COMPANY WILL PAY AN INCREASED COMMISSION IN THAT YEAR AT THE RATE OF 3% OF THE SALES AND 10% OF EXPO RT TURNOVER. 4. IT WAS FURTHER SUBMITTED THAT DURING THE YEAR, T HE SALES OF THE COMPANY HAS INCREASED 44% IN COMPARISON TO L AST YEAR AND PROFIT OF THE COMPANY HAS INCREASED BY 186%. TH E TURNOVER OF THE COMPANY HAS GONE UP MORE THAN RS.30 CRORES, THEREFORE, ON ACHIEVING THIS TURNOVER THE DIRECTORS SHRI ATUL NATH WAS ENTITLED FOR THE COMMISSION @ 3% OF THE SA LES AND 10% OF THE EXPORT TURNOVER. HOWEVER, THE TOTAL COMM ISSION WAS RESTRICTED TO 5% OF THE TOTAL TURNOVER. LD. CIT (A) ALSO NOTED THAT THE COMPANY HAD PAID SIMILAR COMMISSION TO THE DIRECTORS FROM ASSESSMENT YEAR 2009-10 TO 2011-12. IT WAS FURTHER BROUGHT TO THE NOTICE THAT SIMILAR COMMISSI ON PAYMENT WAS ALLOWED IN THE ASSESSMENT ORDER PASSED U/S. 143(3) IN THE ASSESSMENT YEARS 2009-10 AND 2010-11 BY THE ASSESSING OFFICER. FURTHER, RELIANCE WAS PLACED ON THE ITA NO.4687/DEL/2016 5 JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AMD METPLAST PVT. LTD. VS. DCIT, 341 ITR 563 AND CIT VS. CAREER LAUNCHER INDIA LTD., (2012) 250 CTR 240 (DEL ). LD. CIT (A) LOOKING TO THE ENTIRE FACTS, PAST HISTORY A ND THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT THE FACTS OF THE CASE ARE IDENTICAL TO THE PRONOUNC EMENT OF HONBLE JURISDICTIONAL HIGH COURT AND COMMISSION IS ALLOWABLE. 6. LD. DR RELIED UPON THE OBSERVATION OF THE ASSESS ING OFFICER STATED THAT IN TERMS OF SECTION 36(1)(II) A NY KIND OF COMMISSION PAID TO THE DIRECTORS WHO WAS A SHAREHOL DER CANNOT BE ALLOWED WHERE THEY ARE ENTITLED FOR DIVID END AND PROFITS OF THE COMPANY. 7. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER OF THE LD. CIT (A) A ND SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY TH E JUDGMENT OF HONBLE HIGH COURT (SUPRA). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT THERE IS NO DI SPUTE ON FACT THAT THE DIRECTORS WERE GIVEN COMMISSION FOR P ROMOTING SALES AND INCREASING THE SALE OF THE COMPANY BY THE IR EFFORTS AND OVER THE PERIOD OF TIME THE ASSESSEES TURNOVER HAS INCREASED MANIFOLD AND ALSO THE PROFIT. FURTHER, SI MILAR COMMISSION PAID TO THE DIRECTORS IN TERMS OF SAME A GREEMENT HAS BEEN ALLOWED IN THE PAST BY THE ASSESSING OFFIC ER HIMSELF IN ORDERS PASSED IN SCRUTINY PROCEEDINGS U/S 143(3) . IF ITA NO.4687/DEL/2016 6 DIRECTORS IN TERMS OF BOARD RESOLUTION ARE ENTITLED TO RECEIVE COMMISSION FOR RENDERING SERVICES TO THE COMPANY AN D IF IT WAS IN TERMS OF EMPLOYMENT ON THE BASIS OF WHICH TH EY HAVE BEEN RENDERING SERVICES, THEN SUCH REMUNERATION/ COMMISSION IS PART AND PARCEL OF SALARY. IT IS ALSO NOT DISPUTED THAT TDS HAS BEEN DEDUCTED ON SUCH COMMISS ION AS SALARY. OTHERWISE ALSO, THE PAYMENT OF DIVIDEND IS MADE IN TERMS OF COMPANIES ACT, 1956 WHICH HAS TO BE PAID T O ALL THE SHAREHOLDERS EQUALLY AND DIVIDEND IS BASICALLY A RE TURN OF INVESTMENT AND NOT SALARY OR PART THEREOF. THIS PRO POSITION HAS BEEN UPHELD BY HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF AMD METPLAST PVT. LTD. VS. DCIT, 341 ITR 563, WHEREIN THEIR LORDSHIPS WERE REQUIRED TO ANSWER THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: WHETHER, THE TRIBUNAL IS, RIGHT IN HOLDING THAT COMMISSION OF RS. 25,00,000 PAID TO MR. ASHOK GUPTA , MANAGING DIRECTOR OF THE ASSESSEE CANNOT BE ALLOWED AS A DEDUCTION IN VIEW OF SECTION 36(1)(II) OF THE INCOM E TAX ACT, 1961, AND THE SAID AMOUNT CAN BE ONLY ALLOWED UNDER SECTION 36(1)(II) IF DIVIDEND OF RS. 25,00,000 COUL D NOT HAVE BEEN PAID TO MR. ASHOK GUPTA. THEIR LORDSHIPS AFTER CONSIDERING THE VARIOUS JUDGME NTS AND THE POSITION OF LAW HAVE OBSERVED AND HELD AS UNDER : 9. WE FAIL TO UNDERSTAND HOW THE AFORESAID OBSERVA TIONS ASSIST AND HELP THE REVENUE IN THE FACTUAL MATRIX O F THE PRESENT CASE. ASHOK GUPTA IS THE MANAGING DIRECTOR AND IN T ERMS OF THE BOARD RESOLUTION IS ENTITLED TO RECEIVE COMMISSION FOR SERVICES ITA NO.4687/DEL/2016 7 RENDERED TO THE COMPANY. IT IS A TERM OF EMPLOYMENT ON THE BASIS OF WHICH HE HAD RENDERED SERVICE. ACCORDINGLY, HE W AS ENTITLED TO THE SAID AMOUNT. COMMISSION WAS TREATED AS A PAR T AND PARCEL OF SALARY AND TDS HAS BEEN DEDUCTED. ASHOK G UPTA WAS LIABLE TO PAY TAX ON BOTH THE SALARY COMPONENT AND THE COMMISSION. PAYMENT OF DIVIDEND IS MADE IN TERMS OF THE COMPANIES ACT, 1956, DIVIDEND HAS TO BE PAID TO ALL SHAREHOLDERS EQUALLY. THIS POSITION CANNOT BE DISPU TED BY THE REVENUE. 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 RE NDERED BY HIM AS PER TERMS OF APPOINTMENT AS A MANAGING DIREC TOR. 9. SIMILAR VIEW WAS TAKEN ON THE CONCEPT OF BONUS P AYMENT FOLLOWING THE JUDGMENT OF AMD METPLAST PVT. LTD. (SU PRA) IN THE CASE OF CIT VS. CARRER LAUNCHER INDIA LTD. (358 ITR 179) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE, INTERPRETING SECTION 36(1)(II). THUS, THE ORDER OF LD. CIT (A) WHICH IS BASED ON THE BINDING JUDICIAL PRECEDENT OF HONBLE JURISDICTIONAL HIGH COURT, IS UPHELD. ACCORDINGLY, THE REVENUES APPEAL IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY, 2020. SD/- SD/- [DR. B.R.R. KUMAR] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25 TH FEBRUARY, 2020 PKK:
