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TMI Blog2018 (10) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 37(1) were made by the Ld. AO, nor. Even though in my view the appellant company may be deemed as Public Limited Company under the Companies Act, 1956 and had made default under that Act, within the meaning of Section 198(1) read with Section 309, it could not be the sole reason for making disallowance of managerial remuneration for computing the taxable income of the appellant under the Income Tax Act, 1961. In view of the above, the addition made by the Ld. AO is deleted. - Decided in favour of assessee Addition on account of inflation of loss - Held that:- The Hon'ble Jurisdictional High Court in the case of CIT vs. M/s Triveni Engineering Industries Ltd.[2010 (11) TMI 90 - DELHI HIGH COURT] has time and again upheld that if the rates of taxation are uniform, it does not make a difference if a portion of income is taxed in either of the years as such exercise becomes revenue neutral. In appellant's case, the position is even in the favour of the appellant if such exercise of bifurcation of income is made. In considered view, there is no need of doing such exercise and the results shown by the appellant should be treated as perfectly in order. AO's action in making the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 4 of the Companies Act, 1956 are attracted till 14 March 2010 as G4S Plc. UK the holding company with effect from 8 July, 2008 (ultimate holding company prior to 8 July, 2008), if incorporated in India would have been a public company and some of the shares were being held by an India company until 14 March, 2010. Consequently the Company cannot avail the exemption and privileges of private companies under the Companies Act, 1956 until 14 March, 2010. We have verified compliance with the provisions of the Companies Act 1956 which have an impact on the Financial Statement of a subsidiary of the public company and have found the Company to be in compliance with such provisions during the period 1 April 2009 to 14 March, 2010 and for the year ended 31 March, 2009 except for managerial remuneration aggregating ₹ 84,07,826/- and ₹ 1,10,02,670/- paid during the period 1 April 2009 to 14 March, 2010 and for the year 31 March, 2009 respectively which is in excess of applicable limits specified in Schedule XIII of the Companies Act, 1956 and necessary Central Government approval in this regard is yet to be obtained. Accordingly, personnel expense and loss before ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .71% 25000 0.71% G4S Corporate Services (India) Pvt. Ltd. 10 0.00% G4S Plc, UK 3497800 99.29% 3497800 99.29% G4S India Holdings (NL) BV (formerly known as Group 4 Falck Finance B.V.) Netehrlands 10 0. 00% 3522810 100 3522810 100 From the above table it is clear that the 99.29% shares were held by G4S Plc. UK the holding company of G4S Holding India Ltd. and only 0.71% shares were held by G4S Holding India Ltd. The G4S Plc. UK was incorporated in UK. 4. Further the ld. A.O. observed that the auditor of the company has also made comments regarding inflation of loss. In this regard assessee has submitted that he has rightly claimed that the assessee recognised the income amounting to ₹ 55,28,763/- in the assessment year 2009-10 as per its contract with the customer. During the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther in respect of ground No. 2, Ld. AR of the assessee submitted that the same amount of ₹ 55,28,763/- had been considered while finalising income tax return for the assessment year 2009-10. Therefore the double addition is not warranted. Ld. CIT(A) has rightly discussed this issue in detail in his order and accordingly allowed the appeal of the assessee. 9. After hearing both the sides and the material available on record, we observe that the issue involved in ground No.1 has been decided by co-ordinate Bench of Tribunal in favour of the assessee in ITA No. 2086/Del/2014 (A.Y. 2010-11) in the case of DCIT vs. M/s. G4S Corporate Services (I) Pvt. Ltd. vide order dated 28.11.2016. The findings of the Tribunal are as under :- 5. We have heard the rival submissions and have perused the relevant material on record, we find that the CIT(A) has dealt with the issue elaborately and has arrived at his conclusion at paras 6 to 6.9 of his order which is being reproduced hereinbelow for ready reference :- 6. I have carefully considered the facts of the case in the light of the above submissions made by the appellant, the provisions of Companies Act 1956 and the applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to be allowed under the provisions of Section 37(1) and such claim has to pass through the commercial tests of business expediency and the condition laid down u/s 37(1). 6.4 In the case of the appellant, it is undisputed that the appellant's income was shown under the head Profits and gains of business or profession and has been accepted by the AO as such without any difference of opinion. Therefore, the most important factor for allowing the claim is to see if the conditions prescribed u/s 37(1) are satisfied. The provisions of Section 37(1) read as under:- Any expenditure (not being expenditure of the nature described in Section 30 to 36 and not being in the nature of capital expenditure true or personal expenses of the assessee), laid out or expanded wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . (Explanation - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et 10% mark-up on the net expenses incurred by it. During the year as against the net expenses of ₹ 8,63,80,173, the appellant had earned an. amount of ₹ 85,83,597 towards the 10% mark-up charges. Therefore, even though the appellant may have paid additional managerial remuneration of an amount of ₹ 1,54,04,980 to its directors, its income has increased by 10% of the same amount. Accordingly, if comprehensively taken, the appellant's income has increased commensurately by increasing managerial remuneration and even the revenue stands benefited by such an increase in managerial remuneration. Therefore, the appellant in its business prudence took a view to increase managerial remuneration (which was fully recovered from its clients) and on which additional 10% markup was realized by it. In view of the same, the action of the AO based only on the auditor's comments without taking business prudence and commercial expediency is not sustainable. 6.6 Without prejudice to the above, the observations made by the auditors in the notes to accounts, which is the sole ground behind the disallowance made by the Ld. AO, are also not free from dispute. In a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision provide for deeming a private company being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India would have been a public company, as a subsidiary of the public company. However, from the preview of this Sub-Section (7), those private companies are excluded in whose case the entire share capital is not held by their holding company incorporated outside India, (whether alone or together with other companies incorporated outside India). Thus from the purview of Sub- Section (7), only those private subsidiary companies are exempted, in whose cases the entire share capital is held by their foreign holding company, whether alone or together with other body corporates incorporated outside India. 6.7.3 In my view, the only key issue in question is whether M/s GHI, if incorporated in India would have been held as a Public Limited Company or not. If it were so, then the appellant company would have been considered for being held as a Public Limited Company, since the entire share holding in the appellant company is not held by M/s GHI (alone or alongwith other body corporate incorporated outside India) as 0.02% of the share were held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r services rendered by any such director in any other capacity shall not be so included if- (a) The services rendered are of a professional nature, and (b) In the opinion of the Central Government, the director possesses the requisite qualifications for the practice of the profession] (2) A director may receive remuneration by way of a fee for each meeting of the Board, or a committee thereof, attended by him: Provided that where immediately before the commencement of the Companies (Amendment) Act, 1960, fees for meeting of the Board and any committee thereof, attended by a director are paid on a monthly basis, such fees may continue to be paid on that basis for a period of two years after such commencement or for the remainder of the term of office of such director whichever is less but no longer. (3) A director who is either in the whole-time employment of the company or a managing director may be paid remuneration either by way of monthly payment or at a specified percentage of the net profits of the company or partly by one way and pertly by the other: Provided that except with the approval of the Central Government such remuneration sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted, the Companies Act, 1956 also provides for a general penalty provision u/s 629A, under circumstances, where a company or any other person contravenes any provision of the Companies Act or any condition, limitation, restriction subject to which any approval, sanction, consent, etc has been accorded, and in such a case, such a company or a person is liable to be punished with a fine of ₹ 5000 and in case of continuing default, the penalty may extend to ₹ 500 for every day of the default. As the Companies Act, 1956 is a separate statute, it has separate remedial and penal provisions, therefore, if any compliance thereto has not been made, the corresponding remedy or the penalty is provided thereunder itself. Moreover, as held in the case of Karnataka Bank Ltd. Vs. ACIT (Supra) the RBI Act, the Companies Act and the Income Tax Act operate altogether in different fields and the question whether the assessee is entitled to particular deduction or not, will depend upon the provision of law relating thereto and not the way, in which entries are made in the books of accounts. The Ld. AO therefore was not bound under the Income Tax Act, 1961 to hold the alleged non-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending 31.03.2010 are also affected. The auditor has categorically held that in AY 2009-10, the appellant has shown service income more by ₹ 55,28.763/-, which was not as per AS-9. Had the appellant followed the accounting standard in respect of revenue recognition, the income for AY 31.03.2009 should have been reduced by ₹ 55,28,763/- and it would have resulted in increase of loss after tax in that year by ₹ 70,52,578/- and correspondingly, sundry debtors should have been lowered by similar amount of ₹ 70,57,578/-. The effect of such adjustment during the year would have been the decrease in loss after tax at ₹ 55,28,763/- and corresponding adjustment of bad debts of ₹ 46,73,036/- written off by the appellant during the year. Taking the clue from auditor's such remark, the AO made addition of ₹ 55,28,763/- in the appellant's income. 8.2.2. The appellant, on the other hand, has explained the effect of auditor's observation regarding recognition of income amounting to ₹ 55,28,763/- in AY 2009-10 by bifurcating it into two parts namely ₹ 23,79,543/-, resultant increase in service income of ₹ 31,49,2211- as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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