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TMI Blog2019 (3) TMI 1250X X X X Extracts X X X X X X X X Extracts X X X X ..... y received. AO has not brought any comparative cases to determine as to how the commission paid to the Directors is excessive. There is no doubt about the qualifications and contribution of the Directors for obtaining the orders and increasing the turnovers. The payment of commission has been the practice of the company for the past seven years. The Directors who have been receiving the commission are also paying tax at the maximum merchant rate so as the company hence no revenue leakage could also be found based on the tax payments. Even the dividend distribution tax in the hands of the company @ 12.5% and tax free in the hands of the recipient would not be give any credence to the alleged surreptious tax planning. Increase in personal expenses and comparing it with the increase in Directors remuneration cannot be accepted as a methodology to calculate the reasonable remuneration. The company can determine the rates of salary, remuneration, commission as long as it doesn’t infarct any law enforce which is the case of the assessee. Hence we hereby delete the addition made and hold that no interference is called for pertaining to the commission paid by the assessee to the Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of the provisions of Section 40A(2)(b) and since no evidence regarding unreasonableness of the rent paid has been brought on record we hereby decline to interfere in the order of the Ld. CIT(A).- Decided in favour of assessee Taxability of Keyman Insurance Policy - accrual or receipt basis - HELD THAT:- The proceeds from Insurance company in respect of Keyman Policy will be taxable only on receipt basis. From, the provisions of section 2(24)(xi) read with section 28(vi), it is evident that the amount of bonus on Keyman Insurance Policy is to be taxed on receipt basis only. Hence the addition made by the Assessing Officer taxing the income on accrual basis cannot be held to be valid in the eyes of the law. Hence we decline to interfere in the order of the Ld. CIT(A).- Decided in favour of assessee - ITA No.2564/Del/2013, ITA No.2394/Del/2014, ITA No.6155 to 6156/Del/2014, ITA No.5454/Del/2011 And ITA No.4994/Del/2015 - - - Dated:- 12-3-2019 - SHRI KULDIP SINGH, JUDICIAL MEMBER AND Dr. B.R.R. KUMAR, ACCOUNTANT MEMBER For The Revenue : Sh. Amit Katoch, Sr. DR For The Assessee : Ms. Manisha Sharma, Advocate ORDER Per B. R. R. Kumar, AM: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by are as under: Marketing and procurement of export orders. Negotiation of the buying agency terms with the Overseas Buyers Client relationship with the Overseas Buyers Supply chain management 6. It was submitted that the assessee is in the buying house trade which is more than 40 years old, there are only a few companies which have attained the size of the assessee in terms of the export orders executed and commission earned thereon. It was stated that the assessee is among the top 10 buying houses in India which include global giants like William Connors and Li Fung which has been possible purely due to the efforts made by the directors and their contacts with the overseas buyers. Considering the contribution made by above directors for the growth and development of business of the assessee and services rendered by them, the assessee has paid the above amount of commission to them. Further on the allegation that the excess payment of commission is made in lieu of dividend income, it was submitted before the Ld. CIT(A) which is reproduced as under: It is submitted that Mr. Rajive Suri, Chairman of the assessee is having experience of over 32 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders. It is submitted that it is not mandatory to pay dividend and moreover, the Companies Act, 1956 does not stipulate that dividend must be paid. Payment of salary to the directors is for the work and actual services rendered by them to the company. It is a contractual obligation but can be regulated by law. It is further submitted that the nature of the two payments, i.e. dividend and salary are entirely different. 7.2 It is submitted that there is no basis or material or evidence brought on record by Assessing Officer to support this contention that the commission would have been paid as dividend to the shareholders. Companies Act, 1956 contains the limitations and restriction in the matter of payment of dividend and such discretion of the company either to pay or not to pay dividend cannot be assumed. Assessing Officer cannot presume that had this commission not been paid, this would have necessarily been paid as dividend to the shareholders. There is no basis for this assumption. 8. Ld. DR strongly supported the orders of the Assessing Officer. 9. Primarily we also hold that the Revenue s contention that the assessee is bound by Section 198 and Section 309 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Directors which goes contra to the payments they received. The Assessing Officer has not brought any comparative cases to determine as to how the commission paid to the Directors is excessive. There is no doubt about the qualifications and contribution of the Directors for obtaining the orders and increasing the turnovers. The payment of commission has been the practice of the company for the past seven years. The Directors who have been receiving the commission are also paying tax at the maximum merchant rate so as the company hence no revenue leakage could also be found based on the tax payments. Even the dividend distribution tax in the hands of the company @ 12.5% and tax free in the hands of the recipient would not be give any credence to the alleged surreptious tax planning. Increase in personal expenses and comparing it with the increase in Directors remuneration cannot be accepted as a methodology to calculate the reasonable remuneration. The company can determine the rates of salary, remuneration, commission as long as it doesn t infarct any law enforce which is the case of the assessee. Hence we hereby delete the addition made by the Assessing Officer and hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be on cogent ground, with the claim of the assessee, that the Assessing Officer should follow the prescribed procedure under Rule 8D. The assessee's plea before the AO was that in respect of an amount of ₹ 53,326/- which, being STT payment, is directly related to the dividend income, disallowance was already made by the assessee under Rule 8D(2)(i) while in respect of administrative expenses, it had followed the working as per Rule 8D(2)(iii), whereby an amount of ₹ 8,31,928/- was disallowed. The Assessing Officer did not examine this plea in nor could find any fault in the claim of the assessee having regards to its account. The interpretation of the AO regarding the applicability of the provisions of Rule 8D is certainly incorrect and not in accordance with the law as interpreted by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Since the AO did not record any satisfaction on regarding the claim of the assessee having its accounts, the AO was not empowered to invoke Rule 8D at the first place. Accordingly, the action of the AO of making disallowance there under is not justified. On facts, the assessee has given details of interest expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the rent and if this fact taken into account, there would hardly be any difference between the two premises. The Ld. CIT(A) deleted the addition based on the orders in the case of the assessee for the A.Y. 2007-08 and 2008-09. The Ld. CIT(A) also held that there was no excessive or unreasonable payment to related persons as per the provisions of Section 40A(2)(b). Since we find that the Assessing Officer has not considered the payment of the maintenance charges, location, and applicability of the provisions of Section 40A(2)(b) and since no evidence regarding unreasonableness of the rent paid has been brought on record we hereby decline to interfere in the order of the Ld. CIT(A). Grounds relating to Keyman Insurance Policy: 18. The provisions of section 28(vi) of the Act read with section 2(24)(xi) relating to bonus on Keyman Insurance Policy includes: Any some received under a Keyman Insurance Policy including the sum allocated by way of bonus in such policy. 19. The proceeds from LIC are Exempt under section 10(10D) except in the following 3 cases: 1. If amount is received on a keyman insurance policy. 2. If amount is received from a pensio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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