2018 (7) TMI 1399 - AT - Income Tax

Addition under the head Income from Salary - In this case, what was paid to the assessee is a salary in the capacity as Managing Director of the company - Held that - Merely because the payment was contrary to the provisions of Companies Act, this Tribunal is of the considered opinion that the Income-tax Act, being a special provision, the Companies Act cannot override the Income-tax Act. The Income-tax Act will override the Companies Act. Even the illegal payment or the payment received by the assessee contrary to the provisions of Companies Act by way of salary has to be assessed as income in the assessee s hands provided the same was not recovered by the company. In the absence of any details or material to support the claim of recovery or adjustment in the books with regard to excess payment of salary, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. - Decided against assessee

Summary

Issues:
Delay in filing appeal, Addition of income from salary under the Companies Act, Interpretation of Income-tax Act regarding taxable income.

Analysis:
1. Delay in filing appeal:
The appellant filed a petition for condonation of delay due to a 4-day delay in filing the appeal. The Tribunal found sufficient cause for the delay and admitted the appeal.

2. Addition of income from salary under the Companies Act:
The main issue was the addition of ?1,09,78,005 under "Income from Salary." The appellant, a Managing Director, initially received ?1,37,50,776 as salary, including perquisites. The company revised the salary to ?27,76,011, citing the Companies Act's provisions limiting the salary to 5% of net profits. The Assessing Officer added the difference between the original and revised amounts as income. The appellant argued that the excess payment, though contrary to the Companies Act, should not be considered as income since it was not recovered by the company.

3. Interpretation of Income-tax Act regarding taxable income:
The Tribunal analyzed Section 5 of the Income-tax Act, stating that all money received by the assessee forms part of the total income unless there is a legal obligation to return it. The Tribunal held that the excess payment, even if contrary to the Companies Act, must be assessed as income if not recovered by the company. Lack of evidence of recovery adjustment in the company's books led the Tribunal to confirm the Assessing Officer's order, emphasizing that the Income-tax Act prevails over the Companies Act.

In conclusion, the Tribunal dismissed the appeal, upholding the addition of income from salary as the excess payment was not proven to be adjusted or recovered by the company. The judgment highlights the precedence of the Income-tax Act in determining taxable income over other statutes like the Companies Act.