ITC Limited, Kolkata V. DCIT, Circle - 8, Kolkata, Kolkata

ITA 919/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54680 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 22-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Assessee Lawyers: R K MITRAB K SEAL
• Keywords: Business expenditure; Salary income; Earning of tax free income; Non-deduction of tax
• Section: 143(3); 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , . ! . '# ) [BEFORE SRI MAHAVIR SINGH, JM & SHRI C. D. RAO, AM] $ $ $ $ / I.T.A NO. 919/KOL/2011 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR: 2007-08 I T C LIMITED VS DEPUTY COMMISSIONER OF INCOM E-TAX, (PAN-AAACI 5950 L) CIRCLE-5, KOLKATA. (*+ /APPELLANT ) (,-*+/ RESPONDENT ) DATE OF HEARING: 07/09/2011 DATE OF PRONOUNCEMENT: 18/11/2011 FOR THE APPELLANT: S/SHRI R. K. MITRA/B. K. SEAL FOR THE RESPONDENT: SHRI NIRAJ KUMAR '. / ORDER PER MAHAVIR SINGH, JM ( , , , , ) THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-VII1, KOLKATA IN APPEAL NO.150/CIT(A)-VII1/KOL/10-11 DATED 31.05.2011. ASSE SSMENT WAS FRAMED BY DCIT, CIRCLE-8, KOLKATA U/S. U/S. 143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE HIS ORDER DATED 31.12. 2010. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST ORDER OF CIT(A) CONFIRMING DISALLOWANCE OF STAFF WELFARE EXPENSES BY INVOKING PROVISIONS OF SECTION 40A(9) OF THE ACT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO. 1: 1) EXPENDITURE ON STAFF WELFARE DISALLOWED UNDER S ECTION 40A(9): RS.8,66,375/-. FOR THAT THE LD. CIT(A) ERRED IN DISALLOWING THE E XPENDITURE FOR STAFF WELFARE UNDER SECTION 40A(9) IN RESPECT OF EMPLOYEE CLUBS AND CO-OPERATIVES. FOR THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT GENUINE EXPENDITURE FOR STAFF WELFARE IS FULLY ALLOWABLE UNDER THE INCOME TAX AC T. RELIEF PRAYED THE DISALLOWANCE OF RS.8,66,375/- SHOULD BE DELETE D. 3. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSEE IS A PUBLIC COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CIGARETTES, BUYING, PROCESSING AND SELLING OF TOBACCO, RUNNING HOTELS, PACKAGING & PRINTING, PAPER & PAPER BOARDS, FOODS, POWER, EXPORTS ETC. FOR THE 2 ITA 919/K/2011 ITC LIMITED . A.Y.07-08 RELEVANT ASSESSMENT YEAR IT FILED RETURN OF INCOME ON 30.10.2007, WHICH WAS SUBSEQUENTLY REVISED ON 25.3.2009 AND ASSESSMENT WAS FRAMED BY A SSESSING OFFICER U/S. 143(3) OF THE ACT. THE ASSESSEE IN ITS RETURN OF INCOME CLAIMED EXPEND ITURE ON ACCOUNT OF STAFF WELFARE AT RS.20,66,455/- IN RESPECT TO SUBSCRIPTION OF VARIOU S STAFF WELFARE ACTIVITIES. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AFTER READING THROUGH THE PROVISIONS OF SECTION 40A AND SECTION 36 OF THE ACT NOTED THAT OU T OF THE TOTAL STAFF WELFARE PAYMENTS EXCEPT FOR CONTRIBUTION OF RS.7.80 LACS TOWARDS ITC WORKME N WELFARE SCHEME AND RS.4,20 LACS PAID TO TRIBENI TISSUES VIDYPAITH ARE COVERED U/S. 36(1) (IV) AND (V) OF THE ACT AND ALLOWED. SIMILARLY, IN THE LINE OF ASSESSMENT YEARS 1998-99 TO 2000-01, HE DISALLOWED A SUM OF RS.8,66,375/- BY STATING THAT THESE PAYMENTS ARE NO T DEDUCTIBLE EXPENSES WITHIN THE MEANING OF SECTION 40A(9) OF THE ACT AND HE DISALLOWED THE SAM E. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF ASS ESSING OFFICER. 4. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE BY TRIBUNAL S DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN ITA NO.475/K/2010 DATED 10.6.2011, WHEREIN TRIBUNAL EXACTLY ON SAME FACTS, VIDE PARA 8 OF ITS ORDER HAS HELD AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE DETAILS OF THE EXPENDITURE AGGREGATING RS.9,00,111 CLAIMED BY THE ASSESSEE, THE BREAK-UP OF WHICH HAS ALREADY BEEN MENTIONED HEREINABOVE. WE OB SERVE THAT THE ASSESSEE HAS MADE THE CONTRIBUTION TO STAFF CLUB/ RECREATION CLU B OF ITS EMPLOYEES. ON PERUSAL OF THE DETAILS, IT IS OBSERVED THAT THE SAID AMOUNTS W ERE REIMBURSED BY THE ASSESSEE FOR SALARY OF THE STAFFS EMPLOYED AT THE CLUB, MAINTENA NCE OF LIBRARY AT THE CLUB, EXPENSES FOR MAINTENANCE OF INDOOR GAME SECTION EXPENSES FO R CONDUCT OF SPORTS COMPETITION AND THEIR FAMILIES, REIMBURSEMENT OF EXPENSES TOWAR DS ELECTRICITY, EXPENSES INCURRED ON PROVIDING CULTURAL RECREATION TO THE MEMBERS/ CULTU RAL EVENTS, EXPENSES FOR ORGANIZING FETE FOR THE MEMBERS/ FAMILIES OF ASSESSEES EMPLOY EES, EXPENSES INCURRED ON ORGANIZING CULTURAL EVENTS ON DIFFERENT OCCASIONS, ANNUAL SOCIAL MEETS OF THE EMPLOYEES/ THEIR FAMILIES, ETC., EXCEPT DIRECT SUBS CRIPTION MADE TO ONE COOPERATIVE SOCIETY OF RS.25,800/-. CONSIDERING THE FACTS OF TH E CASE, WE DO AGREE WITH THE ASSESSEE THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, TH E ASSESSEE HAS FILED THE DETAILS OF THE EXPENSES REIMBURSED TO THE RECREATION CLUBS/ ORGANI ZATIONS/ SOCIETIES OF THE EMPLOYEES AND THEIR FAMILIES AND IT WAS NOT AN EXPE NDITURE INCURRED BY THE ASSESSEE TOWARDS SETTING UP FORMATION OR GIVING DIRECT CONTR IBUTION TO A FUND, TRUST, COMPANY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIET Y REGISTERED UNDER SOCIETIES REGISTRATION ACT, 1860 (EXCEPT TO ONE CONTRIBUTION OF RS.25,800/- AS MENTIONED HEREINABOVE), BUT THE REIMBURSEMENT IS OF THE EXPEN DITURE ACTUALLY INCURRED FOR THE WELFARE ACTIVITIES OF THE EMPLOYEES AND THEIR FAMIL IES. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE STAFF RECREATION CLUB AND STAFF CLUB FOR WHICH THE ASSESSEE HAS INCURRED THE EXPENSES ARE FOR THE WELFARE OF ITS EMPLOYEES D UE TO BUSINESS EXPEDIENCY. STAFF RECREATION CLUB AND STAFF CLUB ARE A PART AND PARCE L OF THE ORGANIZATION ITSELF. CONSIDERING THE EARLIER DECISION OF ITAT, KOLKATA I N THE CASE OF CHLORIDE INDUSTRIES LTD. (SUPRA) AND ALSO THE FACT THAT THE ASSESSEE HA S GIVEN THE BREAK-UP OF THE EXPENSES 3 ITA 919/K/2011 ITC LIMITED . A.Y.07-08 INCURRED/ REIMBURSED, AS MENTIONED HEREINABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 40A(9) OF THE ACT ARE NOT ATTRACTED FOR A SUM OF RS.8,74,311/- AND THE SAID EXPENDITURE IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THEREFORE, WE ALLOW GROUND OF APPEAL TAKEN BY THE ASSESSEE IN PAR T BY RESTRICTING THE DISALLOWANCE TO RS.25,800/- AND BY DELETING THE SUM OF RS.8,74,311/ - OUT OF RS.9,00,111/-. LD. COUNSEL FOR THE ASSESSEE BEFORE US STATED THAT THE SIMILAR EXPENSES ARE IN THE PRESENT YEAR ALSO AND HE REFERRED TO ASSESSEES PAPER BOOK PAGES 5 AND 6, WHICH ARE EXACTLY IDENTICAL LIKE TRIBENI TISSUES RECREATION CLUB RS.1,43,000/-, TRIB ENI TISSUES SPORTS CLUB RS.1,00,000/-, ITC RECREATION CLUB STAFF WELFARE EXPENSES FOR ITC EMP LOYEES RS.3,00,000/-, TRIBENI TISSUES MAHILA SAMITY RS.5,000/-, TRIBENI TISSUES EMPLOYEES RECREATION CLUB RS.1,16,375/-, TRIBENI TISSUES MANAGEMENT STAFF CLUB RS.1,75,000/-, TRIBEN I TISSUES CO-OPERATIVE CREDIT SOCIETY RS.1,200/-, TRIBENI TISSUES CO-OPERATIVE STORES LIM ITED RS.25,800/-, TRIVENI TISSUES VIDYAPITH RS.4,20,000/- AND ITC WORKMEN WELFARE SCHEME STAF F WELFARE EXPENSES AT CIGARETTE DIVISION RS.780,080/-. AS FACTS ARE IDENTICAL IN A Y 2005-06 AND IN PRESENT AY, TAKING A CONSISTENT VIEW AND RESPECTFULLY FOLLOWING TRIBUNAL S ORDER, WE DIRECT THE ASSESSING OFFICER TO DISALLOW ONLY PAYMENT MADE DIRECTLY FOR REGISTRAR O F SOCIETIES I.E. CONTRIBUTION OF RS.25,800/-. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEAL IS PAR TLY ALLOWED. 5. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.2: 2. PROPORTIONATE MANAGEMENT EXPENSES (IN THE CONTE XT OF EXEMPT INCOME): (RS.1,95,07,217/- - RS.49,08,811/-) RS.1,45,98,406/ - FOR THAT THE LD. CIT(A) ERRED IN ARBITRARILY DETERM INING AND DISALLOWING PROPORTIONATE MANAGEMENT EXPENSES UNDER SECTION 14A IN RESPECT OF EXEMPT INCOME SINCE THE APPELLANT COMPANY WAS A PROFITABLE MANUFACTURING COMPANY AND THE SAID INVESTMENTS HAD ARISEN OUT OF PROFITS/SURPLUSES. FOR THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE @ 1% OF EXEMPT INCOME IGNORING THE APPELLANT COMPANYS COMPUTATION DETERMINING THE EXPENSES HAVING SOME CONNECTION TO THE SAID EXEMPT INCOME. RELIEF PRAYED: THE DISALLOWANCE OF RS.1,45,98,406/- SHOULD BE DELE TED. 6. BRIEF FACTS LEADING TO THIS ISSUE ARE THAT ASSE SSEE DETERMINED PROPORTIONATE EXPENSES INADMISSIBLE IN TERM OF SECTION 14A OF THE ACT AT R S.49,08,811/- TOWARDS SALARY AND OTHER COSTS OF THE COMPANYS TREASURY DEPARTMENT, WHICH IS RESP ONSIBLE FOR HANDLING ALL FINANCIAL/WORKING CAPITAL INVESTMENTS AND BANKING FUNCTIONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, 4 ITA 919/K/2011 ITC LIMITED . A.Y.07-08 ASSESSING OFFICER INVOKING PROVISIONS OF SECTION 14 A R.W.R 8D OF I. T. RULES, 1962 MADE DISALLOWANCE AT RS.15,33,88,500/-. AGGRIEVED, ASSE SSEE PREFERRED APPEAL BEFORE CIT(A), WHO RESTRICTED THE DISALLOWANCE AT 1% OF AGGREGATE EXPE NSES AT RS.1,95,07,217/-, THEREBY PARTLY ALLOWING THE CLAIM OF THE ASSESSEE AND RESTRICTED T HE DISALLOWANCE AT RS.1,45,98,406/-. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 7. AFTER HEARING RIVAL CONTENTIONS AND PERUSING FAC TS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT RULE 8D OF THE RULES WILL NOT APPL Y FOR ASSESSMENT YEAR 2006-07 AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOY CEE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.). WE ALSO FIND THAT THE PRINCIPLE LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. VS. DCIT [ 2010] 328 ITR 81 (BOM.) AT PAGES 138 & 139 VIDE SUB PARAS (V) TO (VII) ARE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH E FFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFF ICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICE R SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH D OES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASONABLE BASIS FOR EFFECTING THE APPORTIONM ENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CAS E IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COUR T AND ALSO CONTENTED BY LD. COUNSEL FOR THE ASSESSEE FOR SETTING ASIDE THIS MATTER TO AO TO FIND OUT NEXUS IN TERMS OF DECISION OF HONBLE BOMBAY HIGH COURT, WE SET ASIDE THIS ISSUE TO THE FILE OF AO TO DECIDE THIS ISSUE IN TERM OF DIRECTIONS OF HONBLE BOMBAY HIGH COURT, CI TED SUPRA. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF DEDUCTION OF COMMISSION EXPENSES BY INVOKING THE PROVISIONS OF SECTION 5 ITA 919/K/2011 ITC LIMITED . A.Y.07-08 40(A)(IA) OF THE ACT OF RS.25,67,671/- PAID TO NEWL Y APPOINTED THREE NON-WHOLE TIME DIRECTORS WITHOUT DEDUCTION OF TAX. FOR THIS, ASSESSEE HAS R AISED FOLLOWING GROUND NO.3: 3. COMMISSION TO NON-WHOLE TIME DIRECTORS DISALLOW ED U/S. 40(A)(IA): RS.25,67,671/-. FOR THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DISALL OWING THE DOMESTIC PAYMENT OF COMMISSION TO THE NON-WHOLE TIME DIRECTORS UNDER SE CTION 40(A)(IA) ALTHOUGH THERE ARE NO PROVISIONS FOR DEDUCTION OF TDS UNDER THE INCOME TAX ACT. FOR THAT THE LD. CIT(A) ERRED IN STATING THAT TDS P ROVISIONS OF SECTION 194H FOR PAYMENT OF COMMISSION ARE APPLICABLE IGNORING THE P ROVISIONS OF THE INCOME TAX LAW. FOR THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE IN RESPECT OF RS.12,00,000/- (INCLUDED IN THE TOTAL PAYMENT OF RS .25,67,671/-) CREDITED/PAID TO INSTITUTIONAL SHAREHOLDERS IN RESPECT OF THREE (3) NOMINEE DIRECTORS ALTHOUGH THE PAYMENTS WERE NOT MADE TO THE INDIVIDUALS CONCERNED . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER ERRED IN MAKING THE SAID DISALLOWANCE UNDER THE INCOME TAX LAW. RELIEF PRAYED: THE DISALLOWANCE OF RS.25,67,671/- SHOULD BE DELETE D. 9. THE ASSESSING OFFICER DURING THE COURSE OF ASSES SMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMPANY HAS CLAIMED EXPENDITURE OF RS.25,6 7,671/- TOWARDS COMMISSION PAID TO NON- WHOLE TIME DIRECTORS AND IT HAS NOT DEDUCTED TDS O N THE COMMISSION PAID U/S. 194H OF THE ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE PAYMENTS ALSO COME UNDER THE PROVISIONS OF SECTION 194J OF THE ACT. BUT FINALLY HE NOTED THAT THESE PAYMENTS ARE IN THE NATURE OF COMMISSION AND FALLS UNDER THE PURVIEW OF SECTIO N 194H OF THE ACT AND MADE DISALLOWANCE OF ENTIRE EXPENDITURE OF COMMISSION AT RS.25,67,671 /- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRE D APPEAL BEFORE CIT(A), WHO DISMISSED THE ASSESSEES GROUND OF APPEAL AND HELD AS UNDER: THE ASSESSEE ALSO RELIED ON THE DECISION OF HONBL E MADRAS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. VS. DCIT (SUPRA). IN THAT CASE THE HONBLE COURT HAD CONSIDERED THE AMBIT OF FEE FOR TECHNICAL SERVICES AND NOT THE COMMISSIONS PAID TO NON-EXECUTIVE DIRECTORS. THEREFORE, THE DECISION O F THAT CASE ALSO IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE EXPLANATION BELOW THE SECTION 194H DOES NOT DEF INE THE TERM COMMISSION OR BROKERAGE IN TRUE SENSE, IT RATHER EXPLAINS THE AM BIT OF THAT TERM FOR THE PURPOSE OF THAT SECTION. IT EXPLAINS THAT THE TERM COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECT LY, BY A PERSON ACTION ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PRO FESSIONAL SERVICES). THE SECTION ITSELF ALSO EXCLUDES FROM ITS AMBIT THE COMMISSION PAID BY INSURANCE COMPANY REFERRED TO IN SECTION 194D, COMMISSION OR BROKERAG E PAYABLE BY BHARAT SANCHAR NIGAM LTD., OR MAHANAGAR TELEPHONE NIGAM LTD. TO TH EIR PUBLIC CELL FRANCHISE OR PAYMENTS RECEIVED OR RECOVERABLE BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR 6 ITA 919/K/2011 ITC LIMITED . A.Y.07-08 RENDERING PROFESSIONAL SERVICES. THE COMMISSION PAI D TO NON-EXECUTIVE DIRECTORS IS NOT FOUND TO BE EXCLUDED FROM THE PROVISIONS OF SECTION 194H. IN FACT INCLUSIVE DEFINITION OF THE TERMS COMMISSIO N OR BROKERAGE IN THE EXPLANATION SIGNIFIES/IMPLIES THAT BROADER INTERPRETATION IS TO BE ATTACHED TO THAT TERM, WHICH MEANS THAT PROVISIONS OF SECTION 194H SHALL BE APPL ICABLE TO ALL TYPES OF COMMISSION PAID OR PAYABLE TO ANY PERSON EXCEPT THE ONES SPECI FICALLY EXCLUDED BY THE SECTION ITSELF. THE ASSESSEE COMPANY ALSO RELIED UPON THE D ECISION OF HONBLE KOLKATA ITAT IN THE CASE OF JAHANGIR BIN FACTORY PVT. LTD. VS. DCIT (126 TTJ 567) IN SUPPORT OF ITS CLAIM WHEREIN THE HONBLE ITAT HAD APPROVED THE DEC ISION OF THE CIT(A) THAT THE COMMISSION PAID TO THE DIRECTORS IS NOT IN THE NATU RE OF COMMISSION OR BROKERAGE AS IS ENVISAGED IN SECTION 194H. THE FACTS FOR CONSIDERAT ION IN THAT CASE WERE DIFFERENT FROM THOSE OF THE CASE BEFORE ME. IN THE INSTANT CASE T HE ISSUE IS REGARDING THE COMMISSION PAYMENT TO NON-EXECUTIVE DIRECTORS WHEREAS AS PER A SSESSEES OWN SUBMISSIONS THERE IS DISTINCTION IN THE FACTS OF THAT CASE INASMUCH A S THE ISSUE RELATED TO THE COMMISSION PAID TO WHOLE-TIME DIRECTORS. FOR THE ABOVE STATED DISTINCTION THE RATIO OF THE CASE OF JAHANGIR BIRI FACTORY PVT. LTD. VS. DCIT (SUPRA) AR E NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE LIGHT OF THE ABOVE DISCUSSION, THE CONTENTIO N OF THE ASSESSEE THAT COMMISSION PAYMENT BY IT TO NON-EXECUTIVE DIRECTORS WAS NOT CO VERED BY THE PROVISIONS OF SECTION 194H IS NOT ACCEPTABLE. THEREFORE, THE DISALLOWANCE OF THE SUM OF RS. 25,67,671/- MADE BY THE A.O. IS CONFIRMED. THIS GROUND OF APPEA L IS, THUS, DISMISSED. AGGRIEVED, ASSESSEE FURTHER CAME IN SECOND APPEAL B EFORE TRIBUNAL. 10. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY HAS PAID A SUM OF RS.33,67,671/- AS COMMISSION TO TEN NON- WHOLE TIME DIRECTORS I.E. NON-EXECUTIVE DIRECTORS O UT OF WHICH RS.8 LAC WAS PAID TO TWO FOREIGN DIRECTORS AND TAX WAS DEDUCTED U/S. 195 OF THE ACT. ON THE BALANCE RS.25,67,671/- NO TDS WAS DEDUCTED AND AO DISALLOWED THIS EXPENDITURE BY INVO KING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT . ACCORDING TO ASSESSEE, THESE PAYMENTS CO MPRISED TO INSTITUTIONAL SHAREHOLDERS I.E. LICI, GIC AND UTI FOR A SUM OF RS.12 LAC IN RESPECT OF THREE NOMINEE DIRECTORS AND BALANCE RS.13,67,671/- WAS PAID TO REMAINING FOUR INDIVIDUA L DIRECTORS. IT WAS CLAIMED THAT NON- EXECUTIVE DIRECTORS ARE ONLY MEMBERS OF BOARD OF DI RECTORS AND HAVE NO POWER EXCEPT AS DELEGATED TO THEM BY THE BOARD OR VESTED IN THEM BY THE ARTICLE OF ASSOCIATION OF THE COMPANY. ACCORDING TO ASSESSEE, SUCH GENERAL FUNCTION CANNOT CONSTITUTE ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICE WITHIN THE SCOPE OF SECTION 194 J OF THE ACT. EVEN THESE FUNCTIONS DO NOT FALL UNDER THE PROVISIONS OF SECTION 194H OF THE AC T, REASON BEING THESE COMMISSION PAYMENTS DO NOT FALL WITHIN THE DEFINITION OF COMMISSION AS GIVEN IN THE EXPLANATION TO SECTION 194H OF THE ACT. AS LD. COUNSEL FOR THE ASSESSEE CITED BEF ORE US THAT THIS ISSUE IS COVERED BY THE DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF JAHANGIR BIRI FACTORY PVT. LTD. VS. DCIT 7 ITA 919/K/2011 ITC LIMITED . A.Y.07-08 (2009) 126 TTJ 567 (KOL), WHEREIN THE ISSUE OF TDS ON DIRECTORS COMMISSION WAS DECIDED VIDE PARA 8 TO 12 AS UNDER: 8. AS REGARDING THE SECOND ISSUE, I.E. COMMISSION P AYMENT TO DIRECTORS AMOUNTING TO RS.5,94,036, THE LEARNED CIT(A) HAS DELETED THE SAM E BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE AUTHORISED REPRESENTATIVE AND PERUSED THE ASSESSMENT ORDER. ON CAREFUL CONSID ERATION OF THE RELEVANT FACTS, I AM OF THE OPINION THAT THE COMMISSION PA ID TO THE DIRECTORS IS NOT THE NATURE OF COMMISSION OR BROKERAGE AS IS ENVIS AGED IN S. 194H, NOR AS FEES FOR PROFESSIONAL OR TECHNICAL SERVICES CONSI DERED IN S. 194J OF THE ACT. THEREFORE, THERE WAS NO JUSTIFICATION FOR DISALLOWI NG THE CLAIM FOR COMMISSION PAYMENT TO DIRECTORS, UNDER S. 40(A)(IA) OF THE ACT, WHICH IS OTHERWISE AN ALLOWABLE BUSINESS EXPENDITURE. IT IS A DIFFERENT MATTER THAT ACTUALLY COMMISSION SHOULD ALSO HAVE BEEN INCLUDE D WITHIN SALARY PAYABLE TO THE DIRECTORS AND TAXES SHOULD HAVE BEEN DEDUCTED AT SOURCE THEREFROM. BUT THAT ISSUE IS NOT RELEVANT TO DETERM INE THE PRESENT ISSUE OF DISALLOWABILITY OF THE PAYMENT UNDER CONSIDERATION IN TERMS OF THE PROVISIONS OF S. 40(A)(IA) OF THE ACT. ACCORDINGLY, THE DISALL OWANCE MADE BY THE AO IS DELETED. HOWEVER, THE AO MAY CONSIDER THE COMMISSIO N PAYMENT AS SALARY INCOME OF THE DIRECTORS AND TAKE SUITABLE ACTION FO R NON-DEDUCTION OF TAX THEREFROM IN CASE OF THE ASSESSEE. 9. AGGRIEVED BY THIS, NOW THE REVENUE IS IN APPEAL BEFORE US. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED D EPARTMENTAL REPRESENTATIVE, APPEARING ON BEHALF OF THE REVENUE, HAS HEAVILY RELIED ON THE ORDERS OF THE AO AND CONTENDED THAT ON THIS ISSUE THE LEARNED CIT(A) IS NOT JUSTIFIED IN D ELETING THE SAME BY OBSERVING THAT THE COMMISSION PAID TO THE DIRECTORS IS NOT IN THE NATU RE OF COMMISSION OR BROKERAGE AS ENVISAGED UNDER S. 194H NOR AS FEES FOR PROFESSIONA L OR TECHNICAL SERVICES CONSIDERED IN S. 194J OF THE ACT. THEREFORE, HE SUPPORTED THE ORDERS OF THE AO. 11. ON THE OTHER HAND, THE LEARNED COUNSEL, APPEARI NG ON BEHALF OF THE ASSESSEE, HAS SUPPORTED THE ORDERS OF THE LEARNED CIT(A) AND STAT ED THAT THE DIRECTORS HAVE BEEN PAID COMMISSION, IN ADDITION TO THE SALARIES AND OTHER P ERQUISITES. HENCE, THE DIRECTION OF THE LEARNED CIT(A) ON THIS ISSUE IS IN ACCORDANCE WITH LAW. THEREFORE, HE REQUESTED THAT THE SAME MAY BE UPHELD. 12. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD AND TAKING INTO CONSIDERATION THAT THE ASSES SEE COMPANY HAS PAID THIS COMMISSION TO THE DIRECTORS AS PER THEIR TERMS OF EMPLOYMENT F OR THE WORK DONE IN THEIR CAPACITY AS WHOLE-TIME DIRECTORS, THIS COMMISSION SHOULD HAVE B EEN TREATED AS AN INCENTIVE IN ADDITION TO SALARY, BONUS AND OTHER PERQUISITES. THEREFORE, IN OUR CONSIDERED OPINION, THE LEARNED CIT(A) IS JUSTIFIED IN RECORDING THE SAME AS NOT CO MING WITHIN THE PURVIEW OF COMMISSION OR BROKERAGE AS DEFINED IN S. 194H NOR A FEE FOR PR OFESSIONAL OR TECHNICAL SERVICES AS DEFINED IN S. 194J OF THE IT ACT. THEREFORE, WE FIN D NO INFIRMITY IN THE ORDERS OF THE LEARNED CIT(A) ON THIS ISSUE. THEREFORE, THIS GROUND OF THE REVENUE IS DISMISSED. 8 ITA 919/K/2011 ITC LIMITED . A.Y.07-08 RESPECTFULLY FOLLOWING THE VIEW TAKEN BY JURISDICTI ONAL TRIBUNAL IN THE CASE OF JAHANGIR BIRI FACTORY PVT. LTD. (SUPRA), WE ALLOW THE CLAIM OF AS SESSEE. 11. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED IN PART. 12. ORDER PRONOUNCED IN OPEN COURT ON 18.11.2011 SD/- SD/- . ! . , '# , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( !# !# !# !#) )) ) DATED : 18TH NOVEMBER, 2011 /0 %12 3 JD.(SR.P.S.) '. 4 , 5''6- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT ITC LIMITED, TAXATION DEPARTMENT, 37, J . L. NEHRU ROAD, KOLKATA-700 071. 2 ,-*+ / RESPONDENT, DCIT, CIRCLE-8, KOLKATA 3 . .% ( )/ THE CIT(A), KOLKATA 4. .% / CIT, KOLKATA 5 . => ,% / DR, KOLKATA BENCHES, KOLKATA - ,/ TRUE COPY, '.%?/ BY ORDER, 2 /ASSTT. REGISTRAR .