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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 ..... nditure 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 leading to the above issue are that assessee is a public company engaged in the business of manufacture and sale of cigarettes, buying, processing and selling of tobacco, running hotels, packaging and printing, paper and paperboards, foods, power, exports etc. For the relevant assessment year it filed return of income on 30.10.2007, which was subsequently revised on 25.3.2009 and assessment was framed by Assessing Officer u/s. 143(3) of the Act. The assessee in its return of income claimed expenditure on account of staff welfare at Rs.20,66,455/- in respect to subscription of various staff welfare activities. The Assessing Officer during the course of assessment proceedings after reading through the provisions of section 40A and section 36 of the Act noted that out of the total staff welfare payments except for contribution of Rs.7.80 lacs towards ITC Workmen Welfare Scheme and Rs.4,20 lacs paid to Tribeni Tissues Vidypaith are covered u/s. 36(1)(iv) and (v) of the Act and allowed. Similarly, in the line of Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenses are for the welfare of its employees due to business expediency. Staff Recreation Club and Staff Club are a part and parcel of the Organization itself. Considering the earlier decision of ITAT, Kolkata in the case of Chloride Industries Ltd. (supra) and also the fact that the assessee has given the break-up of the expenses incurred/reimbursed, as mentioned hereinabove, we are of the considered view that the provisions of section 40A(9) of the Act are not attracted for a sum of Rs.8,74,311/- and the said expenditure is allowable under section 37(1) of the Act. Therefore, we allow Ground of appeal taken by the assessee in part by restricting the disallowance to Rs.25,800/- and by deleting the sum of Rs.8,74,311/- out of Rs.9,00,111/-." Ld. Counsel for the assessee before us stated that the similar expenses are in the present year also and he referred to assessee's paper book pages 5 and 6, which are exactly identical like Tribeni Tissues Recreation Club Rs.1,43,000/-, Tribeni Tissues Spo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 perusing facts and circumstances of the case, we are of the view that Rule 8D of the Rules will not apply for assessment year 2006-07 as held by Hon'ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd. vs. DCIT [2010] 328 ITR 81 (Bom.). We also find that the principle laid down by Hon'ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd. vs. DCIT [2010] 328 ITR 81 (Bom.) at pages 138 and 139 vide sub paras (v) to (vii) are as under: "(v) The provisions of rule 8D of the Income-tax Rules which have been notified with effect from March 24, 2008, shall apply with effect from the assessment year 2008-09; (vi) Even prior to the assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub-section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prayed: The disallowance of Rs.25,67,671/- should be deleted." 9. The Assessing Officer during the course of assessment proceedings noted that the assessee Company has claimed expenditure of Rs.25,67,671/- towards commission paid to nonwhole time Directors and it has not deducted TDS on the commission paid u/s. 194H of the Act. The Assessing Officer was of the opinion that these payments also come under the provisions of section 194J of the Act. But finally he noted that these payments are in the nature of commission and falls under the purview of section 194H of the Act and made disallowance of entire expenditure of commission at Rs.25,67,671/- by invoking the provisions of section 40(a)(ia) of the Act. Aggrieved, assessee preferred appeal before CIT(A), who dismissed the assessee's ground of appeal and held as under: "The assessee also relied on the decision of Hon'ble Madras High Court in Skycell Communications Ltd. vs. DCIT (Supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention 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 appeal is, thus, dismissed." Aggrieved, assessee further came in second appeal before Tribunal. 10. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee company has paid a sum of Rs.33,67,671/- as commission to ten nonwhole time directors i.e. non-executive directors out of which Rs.8 lac was paid to two foreign directors and tax was deducted u/s. 195 of the Act. On the balance Rs.25,67,671/- no TDS was deducted and AO disallowed this expenditure by invoking the provisions of section 40(a)(ia) of the Act. According to assessee, these payments comprised to institutional shareholders i.e. LICI, GIC and UTI for a sum of Rs.12 lac in respect of three nominee directors and balance Rs.13,67,671/- was paid to remaining four individual directors. It was claimed that nonexecutive directors are only members of Board of Directors and have no power except as delegated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 the other hand, the learned counsel, appearing on behalf of the assessee, has supported the orders of the learned CIT(A) and stated that the directors have been paid commission, in addition to the salaries and other perquisites. Hence, the direction of the learned CIT(A) on this issue is in accordance with law. Therefore, he requested that the same may be upheld. 12. After hearing the rival submissions and on careful perusal of the materials available on record and taking into consideration that the assessee company has paid this commission to the directors as per their terms of employment for the work done in their capacity as whole-time directors, this commission should have been treated as an incentive in addition to salary, bonus and other perquisites. Therefore, in our considered opinion, the learned CIT(A) is justified in recording the same as not coming within the purview of commission or brok ..... X X X X Extracts X X X X X X X X Extracts X X X X
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