2021 (3) TMI 1221 - HC - Income Tax

Disallowance u/s 36(1)(ii) - Director s remuneration paid - commission to the Director shareholders disallowed - CIT-A deleted the addition as confirmed by tribunal - HELD THAT - As decided in AMD Metplast Pvt Ltd 2011 (12) TMI 320 - DELHI HIGH COURT Managing Director entitled to receive commission for services rendered to the company - It is a term of employment on the basis of whichhe had rendered service. Accordingly he was entitled to the said amount. Commission was treated as a part and parcel of salary and TDS has been deducted. Ashok Gupta 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 tobe paid to all shareholders equally. This position cannot be disputed 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 forservices rendered by him as per terms of appointment as a Managing Director. - Decided in favour of assessee. Disallowance of deduction under section 801B(10) - CIT-A deleted the addition as confirmed by tribunal - HELD THAT - As decided in Sanghvi and Doshi Enterprise 2012 (12) TMI 84 - MADRAS HIGH COURT it is an admitted fact that the approval was granted for construction both by the Chennai Metropolitan Development Authority and the local authority namely Chennai Corporation. The letter of the Chennai Metropolitan Development Authority according sanction to the project as early as 23.9.2003 clearly points out that the sanction was also subject to the approval by the Corporation. With the planning details being subjected to the approval by the Corporation as the competent local authority and it having certified as to the completion as early as 28.12.2007 we are satisfied that the completion being on or before 31.3.2008 the reliance placed on Explanation (2) to reject the assessee s case could not be sustained. In any event given the fact that the approval which is an administrative process is purely at the hands of the Statutory Authority concerned over which the assessee could not have any control the Explanation cannot in any manner have a negative effect on a factual aspect of the matter namely completion of the construction. Thus in a case like this where the local authority being the Corporation had already certified about the completion of the project as per the approved plan the fact that one of the Authorities namely Chennai Metropolitan Development Authority had issued a letter only on 13.6.2008 per se cannot negative the assessee s claim for deduction - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under section 36(1)(ii)
2. Disallowance of deduction under section 80IB(10)

Analysis:

Issue 1: Disallowance under section 36(1)(ii)
The case involved an appeal challenging the order passed by the Income Tax Appellate Tribunal regarding the disallowance under section 36(1)(ii) for the Assessment Year 2008-09. The assessee, a builder and flat promoter, faced scrutiny for various income sources, including profit on sale of flat and land, interior income from wind energy generation, and rental income. The dispute arose from the payment of commission to the Chairman and Managing Director, who held a major shareholding in the company. The Assessing Officer disallowed the commission under section 36(1)(ii), adding it to the total income. However, the Commissioner of Income Tax (Appeals) overturned this decision, stating that the deduction could only be applicable to employees receiving commission, not directors. The Tribunal upheld the Commissioner's decision. The Revenue appealed the Tribunal's decision, leading to the present case.

Issue 2: Disallowance of deduction under section 80IB(10)
The second issue involved the disallowance of deduction under section 80IB(10) related to a project named TVH Rozalia. The assessee claimed the deduction, stating that the conditions were satisfied, including approval by the local authority. However, the Assessing Officer questioned the approval obtained in the name of a director who was not a developer. The Commissioner of Income Tax (Appeals) ruled in favor of the assessee, stating that the company was entitled to the deduction as the developer of the project. The Tribunal also upheld this decision.

In the final judgment, the High Court considered substantial questions of law related to the Tribunal's decisions. The Court referenced judgments from the Delhi High Court and its own Division Bench to support its decision. The Court concluded that both questions of law were covered by previous judgments and decided against the Revenue in favor of the assessee. The Tax Case Appeal was dismissed, emphasizing the absence of tax avoidance motives by the assessee.