ITO, Meerut V. M/s. Sky Teleservices, Meerut

ITA 769/DEL/2010

• Counselvise Citation: 76920114 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 29-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 19-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VEENA JOSHI
• Assessee Lawyers: V K GOEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G DELHI) BEFORE SHRI A.D. JAIN AND SHRI A.N. PAHUJA ITA NO. 769(DEL)2010 ASSESSMENT YEAR: 2006-07 INCOME TAX OFFICER, M/S . SKY TELESERVICES, WARD 2(3), MEERUT. V. 9-10 , 1 ST FLOOR, HARI LAXMI LOK SHIVAJI ROAD, MEERUT. (APPELLANT) (RESP ONDENT) APPELLANT BY: SMT. VEENA JOSHI, SR. DR RESPONDENT BY: SHRI V.K. GOEL, ADVOCATE ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2006-07 AGAINST THE ORDER DATED 8.12.2009 PASSED BY THE LD. CIT(A), MEERUT, CONTENDING THAT THE LEARNED CIT(A) HAS ERRED IN TREATING THE COMMI SSION PAID BY THE ASSESSEE AS SALARY, EVEN THOUGH IT WAS REFLECTED AS COMMISSION IN THE BOOKS OF ACCOUNT OF THE ASSESSEE; AND THAT THE LD. CIT(A) HAS ERRED IN IGNORING THE PROVISIONS OF SECTION 194 H READ WITH THOSE OF SECT ION 40 (A)(IA) OF THE ACT AND THEREBY DELETING THE ADDITION OF RS. 10,33,985/ -. 2. AS PER THE ASSESSMENT ORDER, THE ASSESSEE FIRM W AS ENGAGED IN THE TRADING OF MOBILE AND FIXED PHONE CONNECTIONS OF M/ S. TATA TELECOM LTD. ON ITA 769(DEL)2010 2 COMMISSION BASIS. THE ASSESSEE WAS FOUND TO HAV E DEBITED EXPENSES OF RS.10,39,190/- TOWARDS COMMISSION FROM ITS RECEIPTS . FROM THE COMMISSION ACCOUNT FURNISHED BY THE ASSESSEE ON QUE RY, IT WAS SEEN THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE IN ACCORDA NCE WITH THE PROVISIONS OF SECTION 194 H OF THE ACT FROM THE PAYMENT OF COMMIS SION EXCEEDING RS. 2,500/-. THE AO OBSERVED THAT EACH OF THE EMPLOYE ES OF THE ASSESSEE HAD BEEN APPOINTED ON A FIXED SALARY AND THE SALARY WAS NOT PERFORMANCE BASED; THAT ON THE BASIS OF PERFORMANCE, ONLY COMMISSION W AS DECIDED AND PAID; THAT THEREFORE, THE PERSONS TO WHOM THE COMMISSION HAD BEEN PAID BY THE ASSESSEE, WERE ITS SALES AGENTS; THAT IF SUCH RECIP IENTS WERE THE EMPLOYEES OF THE ASSESSEE, NOTHING STOPPED THE ASSESSEE FROM SH OWING THE EXPENSES OF COMMISSION IN THE PROFIT AND LOSS ACCOUNT; THAT SIN CE THE ASSESSEE HAD SHOWN COMMISSION EXPENSES IN THE PROFIT AND LOSS ACCOUNT, IT MEANT THAT THE COMMISSION HAD ACTUALLY BEEN PAID BY THE ASSESSEE T O ITS SALES AGENTS. ON OBSERVING SO, THE AO DISALLOWED THE COMMISSION EXP ENSES OF RS. 10,33,985/- WITHOUT DEDUCTION OF TAX, UNDER THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT AND ADDED IT TO THE INCOME OF THE ASSESSEE. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION/DISALLOWANCE. 4. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. ITA 769(DEL)2010 3 5. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS C ONTENDED THAT WHILE WRONGLY DELETING THE DISALLOWANCE, THE LD. CIT(A) H AS FAILED TO CONSIDER THE FACT THAT THE PAYMENT OF COMMISSION WAS REFLECTED A S SUCH, I.E., AS COMMISSION PAYMENT, IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM; THAT THEREFORE, THE LD. CIT(A) HAS ERRED IN TREATING THE COMMISSION PAYMENT AS SALARY; THAT THE LD. CIT(A) HAS WRONGLY HELD THE PR OVISIONS OF SECTION 194 H OF THE ACT TO BE NOT APPLICABLE; AND THAT THEREFORE , THE ORDER PASSED BY THE LD. CIT(A) BE CANCELLED AND THE ADDITION MADE BY THE AO BE REVIVED BY ALLOWING THE APPEAL FILED BY THE DEPARTMENT. 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, HAS STRONGLY RELIED ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDE D THAT UNDISPUTEDLY, THE PAYMENT OF SALARY WAS MADE TO THE EMPLOYEES OF THE ASSESSEE FIRM, ON THE BASIS OF ACTIVATION OF CONNECTION; THAT THE APPOINT MENT LETTERS IN THIS REGARD WERE DULY FILED BEFORE THE AO, BUT THE AO WRONGLY D ID NOT TAKE THEM INTO CONSIDERATION, WHEREAS THE LD. CIT(A) HAS CORRECTLY APPRECIATED THE EVIDENCE BROUGHT ON RECORD; THAT THE PAYMENT AS PER THE ACTI VATED CONNECTIONS CANNOT BE HELD TO BE COMMISSION, EVEN THOUGH IT HAS BEEN S HOWN AS COMMISSION IN THE PROFIT AND LOSS ACCOUNT; THAT THE PROVISIONS OF SECTION 194 H OF THE ACT ARE NOT AT ALL APPLICABLE TO THE PAYMENTS MADE BY T HE ASSESSEE, AS HAS RIGHTLY BEEN HELD BY THE CIT(A); AND THAT THEREFORE, THERE BEING NO FORCE IN THE ITA 769(DEL)2010 4 APPEAL FILED BY THE DEPARTMENT, THE SAME BE DISMISS ED. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO SOUGHT TO PLACE RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN MERILYN SHIPPING AND TRANSPORTS V. ACIT, 20 TAXMANN.COM 244 (VISAKHAPATNAM) (COPY PLA CED ON RECORD). 7. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE PAYMENT IN QUESTION, UNDOUBTEDLY, WAS MADE TO T HE EMPLOYEES OF THE ASSESSEE FIRM, UNDER SPECIFIC APPOINTMENT LETTERS. CLAUSE (1) OF THE APPOINTMENT LETTER READS AS FOLLOWS:- (1) YOU WOULD BE PAID SALARY ON THE BASIS OF ACTIV ATED CONNECTIONS OF TATA INDICOM INCLUDING ALL BENEFITS APART FROM CON VEYANCE. 8. THE PAYMENT, THEREFORE, IS IN LINE WITH THE SPEC IFIC CONDITION CONTAINED IN THE APPOINTMENT LETTER. THAT BEING S O, THE AO OBVIOUSLY ERRED IN OBSERVING THAT THE STAND TAKEN BY THE ASSESSEE W AS A MERE AFTER-THOUGHT SO AS TO AVOID TAXABILITY. THE PAYMENT, IT IS SEEN, WAS ON THE BASIS OF ACTIVATION OF CONNECTION. THE EMPLOYEES OF THE AS SESSEE FIRM WERE GIVEN TRAINING. THE PROBATION PERIOD FOR TRAINING WAS O F SIX MONTHS. THEREAFTER, THE EMPLOYEE WAS TO ACTIVATE THE CONNECTIONS SOLD BY THE ASSESSEE. THE PAYMENT WAS AS PER THE ACTIVATED CONNECTIONS. SEC TION 17 (1)(IV) OF THE ACT PROVIDES FOR SALARY TO INCLUDE, INTER ALIA, ANY C OMMISSION IN VIEW OF OR IN ADDITION TO ANY SALARY. THE PAYMENT IN THE PRESEN T CASE BEING ON THE BASIS ITA 769(DEL)2010 5 OF THE ACTIVATED CONNECTIONS, WAS A PART OF SALARY. THE PAYMENTS WERE MADE TO THE TERRITORY MANAGER, THE SALES EXECUTIVE AND T HE SENIOR SALES EXECUTIVE, STRICTLY IN ACCORDANCE WITH THE CONDITIO NS CONTAINED IN THE APPOINTMENT LETTERS. 9. THE LEARNED CIT(A), IT IS SEEN, HAS DULY TAKEN I NTO CONSIDERATION ALL THE ABOVE FACTS AND HAS RIGHTLY ARRIVED AT THE CONC LUSION THAT THE PAYMENTS IN QUESTION ARE COVERED WITHIN THE DEFINITION OF SALA RY IN TERMS OF SECTION 17 OF THE ACT, DUE TO WHICH, SUCH PAYMENTS ARE NOT HIT BY THE PROVISIONS OF SECTION 194 H OF THE ACT. 10. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A) AND WE HEREBY CONFIRM THE SAME. THE GRIEVA NCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS FOUND TO BE SHORN OF MERIT AN D IS REJECTED AS SUCH. 11. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.05.2012. SD/- SD/- (A.N. PAHUJA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31.05.2012 *RM ITA 769(DEL)2010 6 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR