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TMI Blog2014 (12) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner Of Income-Tax [2009 (3) TMI 215 - ITAT CALCUTTA-C] – wherein it has been held that the commission paid to directors as per terms of employment for the work done in their capacity as whole time directors is to be treated as incentive in addition to salary etc. and did not come within the purview of commission and brokerage as defined in section 194H or fee for professional or technical services as defined in section 194J and therefore the same cannot be disallowed u/s.40(a)(ia) - one of the director Shri Mahendrapal Tank has claimed an expenditure against the receipt of commission - once the commission paid to the directors is held as part of salary income, the Director is not entitled to claim any expenditure from such salary income –Decided partly in favour of assessee. - ITA No. 1538/PN/2013 - - - Dated:- 28-8-2014 - Shri Shailendra Kumar Yadav And Shri R.K. Panda, JJ. For The Appellant : Shri Nikhil Pathak For The Respondent : Shri Rajesh Damor ORDER PER R.K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 03-07-2013 of the CIT(A)-II, Nashik relating to Assessment Year 2010-11. 2. At the time of hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported in 136 ITD 23 (SB). However, the Assessing Officer rejected the above contention of the assessee and disallowed ₹ 18,75,000/- u/s.40(a)(ia) of the I.T. Act. 4. Before the CIT(A) the assessee argued that the commission has been paid to the Directors in addition to the salary. It was submitted that as per the provisions of section 17(1)(iv) salary includes commission . It was submitted that the Directors were paid incentive on adhoc basis and nomenclature given is commission which is factually an incentive formed part of the salary of the directors. Therefore, the addition made by the Assessing Officer u/s.40(a)(ia) is not justified. The copy of the Resolution passed by the company on 28-03-2010 was also filed before the CIT(A). 4.1 However, the CIT(A) was also not satisfied with the explanation given by the assessee and upheld the disallowance made by the Assessing Officer. While doing so, he noted that although the board has resolved that the commission of ₹ 18,75,000/- was to be paid in addition to the regular salary of the directors, however, this arrangement was applicable only for this A.Y. 2010-11. He further observed that the directors in their Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahangir Biri Factory Pvt. Ltd. Vs. DCIT reported in 126 TTJ 567 he submitted that in that case the assessee had made payment to its wholetime Directors in addition to salary and the same was debited under the head commission. The Assessing Officer held that the assessee should have deducted tax u/s.194H on such commission paid to the directors. The Tribunal held that although the said amount was paid to the directors by the assessee in the course of employment for the work done in their capacity as wholetime directors, however, the said payment was to be treated as part of salary of the directors and the same could not be treated as commission as envisaged u/s.194H. Accordingly, the disallowance made u/s.40(a)(ia) was deleted. Similar view has been taken in the case of ACIT Vs. Blue Star Civil Engineering Co. Pvt. Ltd. vide ITA No.1691/KOL/2011 order dated 11-06-2013. 5.2 Regarding the observation of the Assessing Officer that the assessee should have deducted TDS u/s.194H, the Ld. Counsel for the assessee submitted that as per the provisions of section 194H, the assessee has to deduct TDS on payment of any commission/brokerage. He submitted that provisions of section 194H defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions cited before us. There is no dispute to the fact that the assessee has paid Commission of ₹ 18,75,000/- to the 4 directors on which no TDS has been deducted for which the Assessing Officer disallowed the same u/s.40(a)(ia) of the I.T. Act which has been upheld by the CIT(A). It is the case of the Ld. Counsel for the assessee that in view of the clear cut provisions of section 17(1)(iv) the commission paid to the Directors partakes the character of the salary and therefore the provisions of section 194H are not applicable for such payment and therefore the authorities are not justified in invoking the provisions of section 40(a)(ia) to disallow the same. We find merit in the above submission of the Ld. Counsel for the assessee. The provisions of section 17(1)(iv) reads as under : 17. For the purposes of section 15 and 16 and of this section 1. Salary includes :- (i) (ii) (iii) (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages . (v) 7.1 Similarly, Explanation (i) to section 194H reads as under: (i) commission or brokerage includes any payment received or receivable, directly or indire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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