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2021 (7) TMI 354 - HC - Income TaxDisallowance of expenditure on commission payment to the whole-time Managing Director - Tribunal deleted the addition receiving fixed salary and other related benefits and also holding 95% of total shares of the assessee company entitled for receipt of dividend declared by the assessee company u/s 36(1)(ii) - whole time Managing Director of the assessee company who is in receipt of the fixed salary and other salary benefits like other employees of the assessee company is not an employee of the assessee company - HELD THAT - Issue decided in favour of assessee as relying on M/S. TRUE VALUE HOMES (INDIA) PVT. LTD. 2021 (3) TMI 1221 - MADRAS HIGH COURT
Issues:
Challenge to order on I.T.A.No.464/Mds/2015 for Assessment Year 2010-2011 regarding disallowance of commission payment to Managing Director under section 36(i)(ii) of Income Tax Act. Analysis: 1. The appellant, a construction and property company, filed a return declaring a taxable income of ?23,86,06,430 for the Assessment Year 2010-2011. The Assessing Officer made additions resulting in an assessed income of ?38.53 crores, disallowing an amount of ?2,66,41,878 paid as commission to the Chairman and Managing Director, who held 95% shareholding. This disallowance was based on contravention of section 36(i)(ii) of the Income Tax Act, leading to completion of assessment under section 143(3) on 28.03.2013. 2. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee, following previous tribunal decisions for other assessment years. The Revenue then appealed to the Income Tax Appellate Tribunal, which also dismissed the appeal. Subsequently, the Revenue challenged this order before the High Court. 3. The substantial questions of law admitted for consideration were related to the disallowance of commission payment to the Managing Director under section 36(1)(ii) of the Income Tax Act and the classification of the Managing Director as an employee of the company. 4. During the hearing, the Senior Standing Counsel for the appellant acknowledged that the issues raised in the present appeal were previously decided against the Revenue by the High Court in another case. The Counsel referred to a Division Bench judgment of the High Court and a Delhi High Court judgment supporting the allowance of commission to a Managing Director as part of employment terms. 5. The Commissioner of Income Tax (Appeals) noted that the Managing Director had offered the commission for taxation without claiming any deduction, indicating no motive for tax avoidance. The High Court, after considering the precedents and arguments, concluded that the questions of law were covered by previous judgments and decided against the Revenue in favor of the assessee. 6. Following the precedent set by the High Court and considering the arguments presented, the High Court dismissed the Tax Case Appeal, upholding the decision in favor of the assessee. The appeal was concluded without costs, aligning with the established legal principles and previous court decisions. This detailed analysis of the judgment highlights the legal issues, arguments presented, and the court's decision based on precedents and legal interpretations, ultimately resulting in the dismissal of the appeal in favor of the assessee.
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