9911796707
TMI Blog2012 (12) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... these expenses were of personal nature – Held that:- Expenses were incurred by the assessee on birthday and anniversary gift given to the Director and other managerial persons. These expenditure can certainly be categorized as expenditure for the purpose of business as the same amount was to boost the moral of the employees - expenditure in this regard is duly allowable - in favour of the assessee. Addition on account of commission paid to Directors – alleged that in this regard the two employee director also happen to be share holder of the company holding 19.80% and 12.40% of shares of the company – Held that:- Compensation for both the directors were structured in such a way that apart from getting a fixed remuneration for their services rendered, they would also be entitled to receive commission based on the profitability of the company - assessee has paid taxes at maximum marginal rate. Both the Directors have admitted the payment of commission received and offered the same in their income tax returns and had paid at a maximum marginal rate. This clearly establishes the fact that there has been no tax avoidance motive behind the payment of commission to the directors by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffering would arise only at the time of remittances and not before. Hence, the Assessing Officer disallowed the sum of Rs. 1167317/-. 5. Before the Ld. Commissioner of Income Tax (Appeals), assessee placed reliance upon the case laws of ONGC Ltd. 83 ITD 151, Special Bench (Delhi) and Ld. Commissioner of Income Tax vs. Woodward Governor India P Ltd. 312 ITR 254 (SC). The Ld. Commissioner of Income Tax (Appeals) did not accept the contention of the assessee. He opined that assessee has claimed deduction u/s. 37 and the essence of deductibility u/s. 37 is that the increase in liability due to foreign exchange fluctuation must fulfill the twin requirements of expenditure and the factum of such expenditure having been laid out in section 37 of the Act. He held that the present act of the assessee does not fulfill either of the criteria laid out as provided in the Act. In fact there was no expenditure within the meaning of section 37(1) for which the claim was lodged by the assessee. Hence, Ld. Commissioner of Income Tax (Appeals) confirmed the addition. 6. Against the above order the assessee is in appeal before us. Ld. counsel of the assessee submitted that the present case is squar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee submitted that these expenses were incurred on employees as mark of their loyalty and welfare. It was further submitted that these benefits were added to the salary of the employees while calculating their taxable income and tax was deducted thereon. Assessing Officer did not accept the reply acceptable. He disallowed the amount of Rs. 76650/-. 9. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) noted that assessee has failed to establish that such expenses were incurred wholly and exclusively for the purpose of business. Assessment of such income in the hands of the employees does not make any payment as admissible if it does not fulfill section 37 of the Act and hence, the action of the Assessing Officer is correct, hence, sustainable. 10. Against the above order the assessee is in appeal before us. 11. We have heard the rival contentions and perused the records. We find that the above expenses were incurred by the assessee on birthday and anniversary gift given to the Director and other managerial persons. These expenditure can certainly be categorized as expenditure for the purpose of business as the same amount was to boost the moral of the employees. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r distribution as dividend Rs. 1,38,71,441/- Share %age of two employee directors Rs. 32.2% Amount which otherwise received as dividend On distribution. Rs. 44,66,604/- Therefore, amount of Rs. 44,66,604/- was disallowed. 15. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer. Ld. Commissioner of Income Tax (Appeals) found that higher percentage of payment has been made to the Directors namely Sh. Umesh Srivastava and S. Srivastava. He found that the payment to these persons has shown very sharp increase as compared to last year. He further observed that assessee has failed to furnish any material to say that the payment of commission was justified with reference to the services rendered by the directors. Assessee has argued that these directors were paid 5% of net profits and this was decided by a resolution passed by the company. This argument was not acceptable by the Ld. Commissioner of Income Tax (Appeals) because he held that this company is owned by the two directors and their family members. Ld. Commissioner of Income Tax (Appeals) opined that apart from disallowance u/s. 36(1)(ii), the amount disallowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to why he is changing the practice this year that has been followed in the previous year. It is a normal practice in the industry to pay bonus/ commission to senior management personnel which is directly proportional to a fixed percentage of income / profits. This practice of payment of commission based on the profits is quite prevalent in the industry. The commission was being paid by the appellant company as a business practice and industry norms. The appellant company has paid tax on its total income at the maximum marginal rate. Both the directors have admitted the payment of commission received and offered the same in their income tax returns and had paid taxes at maximum marginal rate. This clearly establishes the fact that there has been no tax avoidance motive behind the payment of commission to the directors by the appellant company. Further, the disallowance of such commission will amount to double taxation for the same income as it has already been taxed in the hands of recipients." 17.1 Ld. counsel of the assessee further placed reliance upon the decision of the Tribunal in the case of ACIT vs. M/s Bony Polymers (P) Ltd. 36 SOT 0456 (Del). He further placed relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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