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2023 (9) TMI 600 - AT - Income TaxDisallowances of working Director s commission on profits - Whether eligible as deduction u/s 36(1)(ii)? - HELD THAT - We find that the provisions of section 36(1)(ii) of the Act per se could not be made applicable. Provision of section 36(1)(ii) of the Act states whether any sum paid to an employee as bonus or commission for services rendered, whether such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. If the said commission payment is not made, then the very same sum would be available for distribution to him as profits or dividend. In the instant case, as stated earlier, Mr. Feroz is only holding 5% shares in the assessee company and remaining 95% held by Mr. Mohit. Hence, the decision to declare dividend should be taken with the consent of Mr. Mohit and it is not left to the prerogative of the assessee alone who happens to be minority share holder in the assessee company. Hence, in the facts and circumstances of the instant case, the payment of commission to the Director could not have been paid to him as profit or dividend. Hence, the provision of section 36(1)(ii) of the Act are not applicable at all. Further, we also find Hon ble Jurisdictional High Court in the case of Control Switchgear Contractor Ltd 2014 (6) TMI 46 - DELHI HIGH COURT had held commission paid to Directors is eligible in the hands of the assessee company and they would not be hit by the provision of section 36(1)(ii) of the Act. Thus we direct the ld AO to delete the disallowance of commission made in the instant case. Accordingly, ground No. 1 raised by the assessee is allowed. Seeking appropriate credit for pre paid taxes and adjustment of refund that are due to the assessee - HELD THAT - This requires factual verification and hence, AO is directed to decide the same in accordance with law. Accordingly, ground No. 2 of the assessee is allowed for statistical purposes.
Issues involved:
The appeal in ITA No. 4819/Del/2017 for AY 2009-10 regarding the disallowance of Director's commission of profits. Issue 1: Disallowance of Director's commission The only issue to be decided was whether the ld CIT(A) was justified in confirming the disallowance of Director's commission of profits amounting to Rs. 32,47,750/- in the instant case. The assessee had filed its return of income for AY 2009-10 showing income of Rs. 3,18,29,604/-. The ld AO observed that the assessee had paid a sum of Rs. 32,74,750/- as commission to the Managing Director, which was paid out of profits and invoked section 36(1)(ii) of the Act to disallow the commission. The ld CIT(A) upheld this action. The commission was paid to Mr. Feroz, a Director of the company, based on the approval of shareholders in a general meeting. It was claimed as a deduction in AY 2009-10 but was actually paid in AY 2010-11. The provisions of section 36(1)(ii) of the Act were found not applicable as the decision to declare dividend required the consent of another major shareholder, Mr. Mohit. Judicial precedents were cited to support the eligibility of commission paid to Directors as a deduction. Decision: The Tribunal directed the ld AO to delete the disallowance of commission, as it was found eligible for deduction. Ground No. 1 raised by the assessee was allowed. Issue 2: Appropriate credit for prepaid taxes and adjustment of refunds The second ground raised by the assessee was regarding seeking appropriate credit for prepaid taxes and adjustment of refunds due to the assessee. The Tribunal directed the ld AO to decide this issue in accordance with the law. Decision: Ground No. 2 of the assessee was allowed for statistical purposes. General Grounds: Ground Nos. 3 and 4 raised by the assessee were of a general nature and did not require specific adjudication. In conclusion, the appeal of the assessee was allowed for statistical purposes. Order pronounced in the open court on 05/09/2023.
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