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TMI Blog2015 (1) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer correctly pointed out the defect that no year was mentioned against the current year. Moreover, nowhere it was mentioned in the valuation report regarding valuation of 3000/ - per square yard in the cur rent year. Normally in such a situation the matter should have been referred to the valuation cell but Assessing Officer has referred the mater to the PSIDC which is a government agency responsible for allotting the industrial plots in Mohali area where the plot of the assessee was also located. Agency itself has allotted a plot of 11245 square yard on 22.7.1981 @ 46/ - per square yard the value which was required to be found is on 1.4.1981 and the plot has been allotted by PSIEC on1 July 1981 and the period comes quite in proximity to the date of 1.4.1981 and therefore, in our opinion the Assessing Officer could have applied this rate easily. The Assessing Officer has been more than reasonable in further increasing this rate by three times to as certain the market value, therefore, the valuation as adopted by Assessing Officer seems to be correct. Therefore, we set aside the order of Ld. CIT(A) and restore that of Assessing Officer - Decided against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the directors for their exemplary work done by them with utmost care, diligence and skill which has resulted into good profit to the company. Accordingly, the commission has been paid to the directors after deduction of TDS as applicable. The director has considered this as their income and has paid income tax @ 30% on this payment. In view of this, there is no loss of tax to the revenue. 2. The company has considered ₹ 12,84,488/ - as short term capital gain while computing the tax liability and has paid normal tax @ 30/ - as applicable to the company. There are some error while filing the required columns in the returns however the tax liability has been worked out correctly in the return itself which may please be verified. 3. The plot which has been sold out was acquired by the company before 01.04.1981 hence the fair market value as on 01.04.1981 has been adopted in accordance with section 55(2) (the copy of valuation done by the approved valuer is already enclosed for reference). 4. The transfer expenses amounting to ₹ 52,47,600/ - has been deducted while computing the capital gain. The details of expenses are as under: - a) ₹ 48,00,000/- as commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relied on the decision of Hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd, v CIT 63 ITR 57. Further, companies mainly owned by Shri Jagmohan Singh and his wife and other family relatives and therefore, resolution passed is only a self serving document and reliance cannot be placed on the same. In this regard he relied on the decision of Hon'ble Supreme Court in the case of CIT v Durga Prasad 82 ITR 540 There is no evidence on record to show that extra effort has been made by the director in ar ranging the customers for the sale of property. He also submitted that Normally in case of property transaction, a brokerage of 1 or 2% is paid whereas in this case brokerage has been paid @ 12% which itself shows that it is a way of passing of money from the company to evade tax. He also submitted that it is settled law that income has to be assessed in the hands of correct persons and in this regard he referred to the decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah [1996] 218 ITR 239 Therefore, even if entries have been passed for the commission the income still belongs to the assessee company. While concluding his argument he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion has been paid of ₹ 24 lakhs each of Shri Birinder Mohan Singh or Mrs Kiran B.M. Singh w/o Birinder Mohan Singh i.e. husband and the wife both of whom are directors of the company. Being a substantial shareholder to the extent of more than 96%, it was very easy to pass a resolution and appropriate funds of the company by the family members. Therefore, the Board resolution clearly is a self serving document and cannot be relied on for making the claim for payment of commission. 11. It is further to be noted that Shri Birinder Mohan Singh was paid salary of ₹ 3 lakhs and Mrs. Kiran B.M. Singh w/o Birinder Mohan Singh was also paid remuneration of ₹ 2,40,000/ -. It is settled position of law that Directors occupy the position of trust with respect to the company. Their position is of fiduciary nature which means they were supposed to do everything in Their capacity as director which could have been done by them with respect to the assets of the company which would include organizing successful sale of the property of the company if required without any further remuneration. Similar situation arose before the Hon'ble Supreme Court in the case of Swadeshi Cot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r CIT(A) or before us. Similarly, passing the resolution would not help the case of the assessee. In any case merely passing of the resolution as observed by the Hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd, v CIT (supra) will not make the payment of commission as allowable business expenditure. We need to remember that it was very easy for the director to pass resolution because of the majority share holdings to make the directors entitled for receipt of commission. 13. We also need to appreciate the contention of Ld. DR that commission has been paid @ 12% whereas the normal rates are 1 to 2% which itself shows that commission has been passed on just to save the tax in the hands of the assessee. 14. It was also contended that directors have al ready paid tax by reflecting this commission income at their own hands. In our opinion this contention has no merit because it is almost settled that treatment given in the hands of the recipients will not determine the allowability of expenses in the hands of payee. The Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT 124 ITR 1 clearly observed that "the fact that a certain payment consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yes- Whether however, in case extra services have been rendered for payment of commission, it will be one of relevant factors to consider while deciding whether case is covered by exception provided in section 36(1)(ii), i.e., whether payment of commission is in lieu of dividend-Held, yes-Whether word 'payable' used in section 36(1)(ii) means that dividend would have been declared by any reasonable management on facts and circumstances of case, considering profitability and other relevant factors and become payable to shareholders - Held, yes-Whether, therefore, after considering entirety of facts and circumstances of case, if a reasonable conclusion can be drawn that dividend was payable by assessee company and it instead of paying dividend had paid commission to its employee-shareholder, such payment of commission will be in lieu of dividend and claim of deduction will not be allowable under section 36(1)(ii)- Held, yes- Assessee-company was a share broker-During relevant assessment year, it had paid commission of tune of ₹ 40 lakhs each to three working directors who were only shareholders of company and owned entire share capital of ₹ 6.5 crores of company- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons who got commission were executive directors of the company who we al ready in receipt of the salary and were duty bound to per form the functions which were assigned to them with the remuneration paid to them. Therefore, we set aside his order and restore that of Assessing Officer. 19. Ground No.2: After hearing both the parties we find the plot situated in Industrial Area, Phase-I, Mohali which was sold during the year was purchased prior to 1981. The assessee filed a valuation report from the approved valuer for estimating the fair market value as on 1.4.1981. The valuer mentioned in the valuation report that present rate was ₹ 3000/- per square yard and thereafter he applied the cost inflation index in the reverse order and found value at ₹ 612/- per square yard. Thereafter, he adopted finally rate of ₹ 600/- per square yard and fair market value as on 1.4.1981 was taken at ₹ 25.00,002/-. The Assessing Officer observed that method of reverse indexation was not appropriate method. He further observed that valuer has mentioned that cur rent value of the plot of ₹ 3000/- by square yard but cur rent year has not been mentioned. Further no evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered valuer and therefore, same should be adopted. Further, since valuation was not refereed to DVO, therefore, there was no basis for rejection of the valuer report. The Ld. CIT(A) accepted these submissions and observed that since matter was not referred to DVO the valuation given by registered valuer should have been adopted. 22. Before us Ld. DR referred to the contents of the assessment order and submitted that Assessing Officer has rightly rejected the method of reverse indexation. The Special Bench of the Tribunal in case of Hiralal Lokchandani v ITO 106 ITD 45 has clearly held that reverse indexation method is not correct method for valuation. Similarly, the Hon'ble Calcutta High Court in the case of Jagat Mohan Kapur v Wealth Tax Officer 211 ITR 721 has clearly opined that cost inflation index relates only to forward figures in time but such cost inflation index could not be reversed in a manner so as shrinkage index i.e. for backward calculations. In any case the Assessing Officer has opined the valuation from a government agency which was responsible for allotting the plot and the Assessing Officer has been more than reasonable to increase such valuation by three ..... X X X X Extracts X X X X X X X X Extracts X X X X
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