DCIT, New Delhi V. M/s. CTI Shipbrokers India Pvt. Ltd., Gurgaon

ITA 84/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3518 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Assessee Lawyers: R K KAPOORC A
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH BDELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 84(DEL)2011 ASSESSMENT YEAR: 2007-08 DY.COMMISSIONER OF INCOME TAX, M/S. CTI SHIPBR OKERS INDIA PVT.LTD., CIRCLE 3(1), NEW DELHI. V. ENKAY C ENTRE,UDYOG VIHAR,GURGAON. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI KRISHNA, CIT/DR RESPONDENT BY: S/SHRI PR ADEEP DINODIA & R.K. KAPOOR,CA ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2007-08, TAKING THE FOLLOWING GROUNDS:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF ` 2,07,69,150/- ON ACCOUNT OF COMMISSION AND EX-GRATIA(BONUS) PAID TO THE DIRECTOR OF THE COMPANY IGNORING THAT PROVISIONS OF SECTION 36( 1)(II) OF THE I.T. ACT ARE CLEARLY APPLICABLE IN THIS CASE. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF ` 12,00,000/- ON ACCOUNT OF DISALLOWANCE OF INSURANCE PREMIUM DUE TO AVIVA LIFE INSURANCE COMPANY IGNORING THAT THE DEDUCTION IS ADMISSIBLE O NLY IF THE AMOUNT OF PREMIUM IS DEPOSITED IN THE PREVIOUS YEAR WHICH IS NOT THE CASE HERE. ITA 84(DEL)2011 2 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF ` 16,245/- ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON COMPUTER PERIPHERALS/ACCESSORIES IGNORING THAT AS PER THE IT RULES 60% DEPRECIATION IS ALLOWABLE ONLY ON COMPUTER AND COMP UTER SOFTWARE AND NOT ON COMPUTER PERIPHERALS AND ACCESSORIES. 2. APROPOS GROUND NO.1, THE AO MADE ADDITION OF ` 2,07,69,150/- ON ACCOUNT OF COMMISSION AND EX-GRATIA (BONUS) PAID BY THE ASSESSEE COMPANY TO ITS DIRECTOR, SHRI J.S. KAPUR. THE ASSESSEE HA D PAID TOTAL COMMISSION OF ` 19,44,000/- AND EX-GRATIA (BONUS) OF ` 1,88,25,250/- TO ITS DIRECTOR, SHRI J.S. KAPUR. THE AO NOTED THAT THE ASSESSEE COMPANY HAD SHOWN PROFIT OF ` 1,88,19,027/- AND IN THE CASE OF DIRECTORS, THE SUM PAID AS COMMISSION AND EX-GRATIA COULD HAVE BEEN PAID AS PROFIT, OR DIVIDE ND WHICH HAD NOT BEEN DONE; AND THAT THE AMOUNT WAS NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 36(1)(II) OF THE I.T. ACT. 3. THE LEARNED CIT(A) DELETED THE ADDITION. THIS HAS LED TO GROUND NO.1 BEING RAISED BEFORE US. ITA 84(DEL)2011 3 4. THE LEARNED DR HAS CONTENDED THAT THE LEARNED CI T(A) HAS ERRED IN DELETING THE ADDITION CORRECTLY MADE, IGNORING THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT, WHICH ARE CLEARLY APPLICABLE IN THE PRESENT CASE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE HAS STRONGL Y SUPPORTED THE IMPUGNED ORDER, CONTENDING THAT SHRI J.S. KAPUR WAS THE HEAD OF OPERATIONS OF THE COMPANY, SHIP BROKERS PTE LTD., SINGAPORE AN D WAS EARNING AN ANNUAL REMUNERATION OF ABOUT ` 1.5 CRORES; THAT OVER A PERIOD OF 20 YEARS, HE HAD ACQUIRED SUFFICIENT KNOWLEDGE AND EXPERIENCE IN THE BUSINESS OF SHIP BROKERS; THAT LATER, HE HAD STARTED HIS OWN COMPANY , I.E., THE ASSESSEE COMPANY, AS A JOINT VENTURE WITH ISLAND SHIPBROKERS PTE LTD., SINGAPORE AND CAPITAL SHIPBROKERS LTD., LONDON; THAT HE WAS MADE THE MANAGING DIRECTOR OF THE COMPANY; THAT HE HAD 10% SHARE-HOLDING AND W AS TO RECEIVE ` 20,76,925/- AS DIVIDEND; THAT AS A SHAREHOLDER EMPL OYEE, HE HAD NO VESTED RIGHT TO RECEIVE DIVIDEND UNLESS AND UNTIL IT CAME FROM THE COMPANY; THAT THE REMUNERATION PAID TO HIM WAS SALARY FOR SERVICES RE NDERED, INCLUDING BONUS AND COMMISSION; THAT THE COMMISSION OF ` 19,44,000/- PERTAINED TO HOUSE RENT ALLOWANCE @ ` 1,62,000/- PER MONTH, FORMING PART OF HIS SALARY; THAT THE BONUS WAS DETERMINED BY THE OTHER VENTURE PROGRAME S CONTROL 90% HOLDING ITA 84(DEL)2011 4 , ON HIS PERFORMANCE; THAT THE PAYMENT OF REMUNERAT ION OF ` 2.47 CRORES, INCLUDING BONUS AND COMMISSION WAS JUSTIFIABLE, EVE N AS PER THE PROVISIONS OF SECTION 40A(2) OF THE I.T. ACT; THAT AS SUCH, TH E DISALLOWANCE HAD BEEN INCORRECTLY MADE; THAT THE LD. CIT(A) HAS CORRECTLY DELETED IT; AND THAT AS SUCH, THERE BEING NO FORCE THEREIN, THE GRIEVANCE O F THE DEPARTMENT IN THIS REGARD BE REJECTED. 6. IT IS SEEN THAT UNDISPUTEDLY, SHRI J.S. KAPUR HE LD ONLY 10% OF THE SHARES OF THE COMPANY. AS SUCH, HE WAS A MINORITY SHAREHOLDER THEREIN. MOREOVER, DIVIDEND OF ` 1.73 CRORES HAD BEEN SEPARATELY MADE TO HIM AND THE PAYMENT OF COMMISSION AND EX-GRATIA (BONUS) WAS NOT AT ALL CONNECTED THEREWITH. THE PAYMENTS MADE TO HIM WERE DULY APP ROVED BY THE BOARD OF DIRECTORS OF THE COMPANY AS PER THE COMPANIES ACT. AS CORRECTLY NOTED BY THE LD. CIT(A), IN ACIT V. BONY POLYMERS P. LTD., 36 SOT 456 (DEL), IT WAS HELD, INTER ALIA, THAT COMMISSION WILL NOT BE A LLOWED AS A DEDUCTION U/S 36(1)(II) OF THE ACT IF, HAD IT NOT BEEN SO PAID, I T WOULD BE PAID PROFITS OR DIVIDEND; AND THAT THIS IS WHAT IS PROVIDED U/S 36( 1)(II) OF THE ACT. IN THE PRESENT CASE, AS THEREIN, NO MATERIAL OR EVIDENCE HAS BEEN BROUGHT BY THE AO TO THE EFFECT THAT THE COMMISSION WOULD HAVE BEE N PAID AS DIVIDEND TO THE SHAREHOLDERS. IT IS THE COMPANIES ACT, 1956, W HICH GOVERNS THE PAYMENT ITA 84(DEL)2011 5 OF DIVIDEND, CONTAINING THE LIMITATION AND RESTRICT IONS WITH REGARD THERETO. THE AO CANNOT USER THE DISCRETION OF THE COMPANY RE GARDING PAYMENT OR OTHERWISE OF DIVIDEND. THERE IS NO WARRANT FOR TH E AO TO PRESUMPTION THAT HAD THE COMMISSION BEING NOT PAID, IT WOULD NECESSA RILY HAVE BEEN PAID AS DIVIDEND TO THE SHAREHOLDERS. AS SUCH, THERE IS N O APPLICABILITY OF SECTION 36(1)(II) OF THE ACT, AS HELD IN BONY POLYMERS P. LTD. (SUPRA). FURTHER, EVEN THE DEPARTMENT RECOGNIZES THAT THE FACT OF PAY MENT ALONE IS ESSENTIAL AND THE EXCESSIVENESS THEREOF CAN BE GONE INTO ONLY UNDER THE PROVISIONS OF SECTION 40A(2) OF THE ACT. HEREIN, THE AO HAS NOT INVOKED THE PROVISIONS OF SECTION 40A(2) OF THE ACT. THE COMMISSION PAID TO THE DIRECTOR WAS UNDOUBTEDLY PART OF HIS REMUNERATION, AS HELD IN G ESTETNER DUPLICATORS PVT. LTD. V. CIT, 117 ITR 1(SC), WHICH HAS BEEN RELIED ON IN BONY POLYMERS P. LTD. (SUPRA). 7. THEREFORE, GROUND NO.1 IS FOUND TO BE WITHOUT ME RIT AND IS REJECTED AS SUCH. 8. COMING TO GROUND NO.2, THE AO MADE ADDITION OF ` 12,00,000/- ON ACCOUNT OF DISALLOWANCE OF INSURANCE PREMIUM DUE TO AVIVA LIFE INSURANCE CO., OBSERVING THAT THE DATE OF FILING OF THE PREMI UM PERTAINED TO ASSESSMENT YEAR 2008-09; THAT THE ASSESSEE HAD PAID PREMIUM O F ` 12,00,000/- TO AVIVA ITA 84(DEL)2011 6 LIFE INSURANCE CO. ON 9.4.2007; THAT THE PERIOD OF THE ASSESSMENT YEAR 2007- 08 WAS FROM 1.4.06 TO 31.3.07, WHEREAS THE DATE ON WHICH THE PREMIUM WAS PAID, PERTAINED TO ASSESSMENT YEAR 2008-09; AND THA T THEREFORE, THE PAYMENT OF PREMIUM PERTAINED TO ASSESSMENT YEAR 2008-09 AND NOT ASSESSMENT YEAR 2007-08. 9. THE LEARNED CIT(A) DELETED THE DISALLOWANCE. 10. THE LD. DR HAS CONTENDED THAT WHILE WRONGLY DEL ETING THE DISALLOWANCE OF THE INSURANCE PREMIUM DUE TO AVIVA LIFE INSURANCE CO., THE LD. CIT(A) HAS IGNORED IN CONSIDERING THE FACT THAT THE DEDUCTION IS ADMISSIBLE ONLY IF THE AMOUNT OF PREMIUM WAS DEPOSI TED IN THE PREVIOUS YEAR; AND THAT IN THE PRESENT CASE, THE DEPOSIT HAS UNDENIABLY BEEN MADE IN ASSESSMENT YEAR 2008-09 AND NOT IN ASSESSMENT YEAR 2007-08. 11. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS CONTENDED THAT THE POLICY WITH AVIVA LIFE INSURANCE CO. HAD T AKEN ON 31.3.2005; THAT THERE-UNDER, THE ASSESSEE HAD TO PAY ANNUAL PREMIUM OF ` 12,00,000/-; THAT THE PREMIUM WAS DUE ON 31 ST MARCH EACH YEAR AND WAS PAYABLE WITHIN 30 DAYS FROM THE DUE DATE; THAT THE CLAIM OF THE PAYME NT OF PREMIUM IN QUESTION WAS MADE AS HAVING BECOME DUE ON 31.3.07; THAT THE PAYMENT WAS ACCORDINGLY MADE WITHIN THE GRACE PERIOD, I.E., 9.4 .07. ITA 84(DEL)2011 7 12. IN THIS REGARD, THE PERIOD OF POLICY WAS FROM 1 .4.06 TO 31.3.07. THE LD. CIT(A) HAS CORRECTLY OBSERVED THAT THE AMOUNT B ECAME DUE IN THE YEAR UNDER REFERENCE. THE SAID AMOUNT WAS UNDOUBTEDLY DUE AND ASSERTED. IT WAS ON CONSIDERING THESE CIRCUMSTANCES THAT THE LD. CIT(A) CORRECTLY DELETED THE DISALLOWANCE. 13. THEREFORE, GROUND NO.2 IS REJECTED. 14. CONCERNING GROUND NO.3, THE ASSESSEE CLAIMED DE PRECIATION @ 60% ON COMPUTER ACCESSORIES AND PERIPHERALS. THE AO, HOWEVER, OBSERVED THAT ONLY COMPUTERS AND COMPUTER SOFTWARE ARE ELIGIBLE F OR DEPRECIATION @ 60% AND THAT THE SAID PERIOD CANNOT BE EXTENDED TO COMP UTER ACCESSORIES AND PERIPHERALS. THE AO, AS SUCH, RESTRICTED DEPRECIA TION ON SUCH ITEMS @ 15%. THE DISALLOWANCE OF ` 16,245/- WAS THUS MADE. 15. THE LD. CIT(A) ALLOWED THE ASSESSEES CLAIM, FO LLOWING THE DECISION DATED 31.8.2010, RENDERED BY THE HONBLE DELHI HIGH COURT IN ITA NO. 1266/2010, IN THE CASE OF CIT V. BSES RAJDHANI POW ERS LTD., 2010-TIOL- 636-HC-DEL-IT. 16. THE LD. DR HAS, IN THIS CONCERN, RELIED ON THE ASSESSMENT ORDER, WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE GOES B Y THE IMPUGNED ORDER. 17. IN BSES RAJDHANI POWERS LTD.(SUPRA), IT HAS B EEN HELD, AGREEING WITH THE VIEW TAKEN BY THE TRIBUNAL, THAT COMPUTER ACCESSORIES AND ITA 84(DEL)2011 8 PERIPHERALS FORM AN INTEGRAL PART OF THE COMPUTER S YSTEM; THAT IN FACT, COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT A COMPUTER; AND THAT AS SUCH, THEY ARE PART OF THE COMPUTER SYS TEM, ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. 18. NO DECISION CONTRARY TO BSES RAJDHANI POWERS L TD.(SUPRA), RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT, HAS BEEN CITED BEFORE US. AS SUCH, THE LD. CIT(A) CANNOT BE SAID TO BE AT FAU LT IN BSES RAJDHANI POWERS LTD.(SUPRA). 19. THAT BEING SO, GROUND NO.3 IS REJECTED. 20. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.07.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14.07.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITA 84(DEL)2011 9 TRUE COPY BY ORDER DEPUTY REGISTRAR