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TMI Blog2011 (11) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... ted:- 18-11-2011 - Mahavir Singh, C.D. Rao, JJ. R.K. Mitra and B.K. Seal for the Appellant Niraj Kumar for the Respondent ORDER Mahavir Singh: 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. Assessment was framed by DCIT, Circle-8, Kolkata u/s. u/s. 143(3) of the Income Tax Act, 1961 (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 is 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 section 40A(9): Rs.8,66,375/-. For that the Ld. CIT(A) erred in disallowing the expenditure 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 Act. Relief Prayed The disallowance of Rs.8,66,375/- should be deleted." 3. Brief facts lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricity, expenses incurred on providing cultural recreation to the members/cultural events, expenses for organizing fete for the members/families of assessee's employees, expenses incurred on organizing cultural events on different occasions, annual social meets of the employees/their families, etc., except direct subscription made to one Cooperative Society of Rs.25,800/-. Considering the facts of the case, we do agree with the assessee that in the assessment year under consideration, the assessee has filed the details of the expenses reimbursed to the Recreation Clubs/Organizations/Societies of the employees and their families and it was not an expenditure incurred by the assessee towards setting up formation or giving direct contribution to a fund, Trust, Company, Association of Persons, Body of Individuals, Society registered under Societies' Registration Act, 1860 (except to one contribution of Rs.25,800/- as mentioned hereinabove), but the reimbursement is of the expenditure actually incurred for the welfare activities of the employees and their families. Hence, we are of the considered view that the Staff Recreation Club and Staff Club for which the assessee has incurred the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company's computation determining the expenses having some connection to the said exempt income. Relief Prayed: The disallowance of Rs.1,45,98,406/- should be deleted." 6. Brief facts leading to this issue are that assessee determined proportionate expenses inadmissible in term of section 14A of the Act at Rs.49,08,811/- towards salary and other costs of the company's Treasury Department, which is responsible for handling all financial/working capital investments and banking functions. During the course of assessment proceedings, Assessing Officer invoking provisions of section 14A r.w.r 8D of I.T. Rules, 1962 made disallowance at Rs.15,33,88,500/-. Aggrieved, assessee preferred appeal before CIT(A), who restricted the disallowance at 1% of aggregate expenses at Rs.1,95,07,217/-, thereby partly allowing the claim of the assessee and restricted the disallowance at Rs.1,45,98,406/-. Aggrieved, now assessee is in appeal before us. 7. After hearing rival contentions and pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of deduction of commission expenses by invoking the provisions of section 40(a)(ia) of the Act of Rs.25,67,671/- paid to newly appointed three non-whole time directors without deduction of tax. For this, assessee has raised following ground no.3: "3. Commission to non-whole time Directors disallowed u/s. 40(a)(ia): Rs.25,67,671/-. For that the Ld. CIT(A) was not justified in disallowing the domestic payment of commission to the non-whole time Directors under section 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 provisions of section 194H for payment of commission are applicable ignoring the provisions 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded by the section itself. The assessee company also relied upon the decision of Hon'ble Kolkata ITAT in the case of Jahangir Bin Factory Pvt. Ltd. vs. DCIT (126 TTJ 567) in support of its claim wherein the Hon'ble ITAT had approved the decision of the CIT(A) that the commission paid to the directors is not in the nature of commission or brokerage as is envisaged in section 194H. The facts for consideration in that case were different from those of the case before me. In the instant case the issue is regarding the commission payment to non-executive directors whereas as per assessee's own submissions there is distinction in the facts of that case inasmuch as 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) are not applicable to the facts of the present case. In the light of the above discussion, the contention of the assessee that commission payment by it to non-executive directors was not covered 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wable business expenditure. It is a different matter that actually 'commission' should also have been included within 'salary' payable to the directors and taxes should have been deducted at source therefrom. But that issue is not relevant to determine 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 disallowance made by the AO is deleted. However, the AO may consider the commission payment as salary income of the directors and take suitable action for 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 Departmental 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 deleting the same by observing that the commission paid to the directors is not in the nature of commission or brokerage as envisaged under s. 194H nor as fees for professional or technical services considered in s. 194J of the Act. Therefore, he supported the orders of the AO. 11. On t ..... 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