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TMI Blog2009 (3) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices, considered in s. 194J. HELD THAT:- Assessee company has paid this commission to the directors as per their terms of employment for the work done in their capacity as whole-time directors, this commission should have been treated as an incentive in addition to salary, bonus and other perquisites. Therefore, in our considered opinion, the order of CIT(A) is justified. Therefore, this ground of the Revenue is dismissed. Disallowance of sales promotion (prize coupons) - We are of the considered view that CIT(A) is justified in coming to the opinion that there being no infringement of law, the expenses under consideration does not fall within the mischief of the Explanation to s. 37(1). Since the assessee is trying to increase the sales of its brand of Biris among the others available in the market and this expenditure will not fall within the mischief of prohibitory regulation introduced to curb proliferation of tobacco addiction in the society, which is harmful for the public health. Ad hoc restriction of the disallowance and allowing balance as allowable expenditure to the assessee is not justifiable. In our considered opinion, the assessee is liable to substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has recorded production of as many as 1,70,51,03,300 number of Biris during the financial year 2004-05. Such huge task are performed by outside labourers who are known as "home workers" scattered over different localities and whom the company is not at all familiar with and who are not on the payroll as it is verified from the Biri binding charges, wages and bonus register. Such home workers are few thousands in number. Hence the company had to recruit or engage or appoint as many as 364 contractors who recruit the labourers from different and even distant localities and get the assigned binding works done by the numerous number of Biri binders. It would also be evident from details produced that for getting the work contract, the company accepted huge amount of security deposits from such contractors, which as per accounts stood at Rs. 30,97,364 as on 31st March, 2005. Hence, on verification of books of accounts and audit report and enclosures and the Biri binding charges register itself, it has been categorically noticed that the assessee has engaged the contractors against security deposits which is identically followed in cases where any governmental or non-governmental or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he line of Biri manufacturing and the income has been shown under the head "Income from other sources" in the (sic) Hence, the commission amounting to Rs. 5,94,036 payable/paid to the directors during the relevant accounting period without deducting tax at source has been disallowed. (iii) On account of sales promotion (prize coupons): The assessee debited expenditure amounting to Rs. 46,03,324 in the P L a/c on account of "prize coupon and scheme" which as stated by the assessee is done with a view to encourage sales of the product in the competitive market. This cost, if at all incurred, is definitely aimed towards advertisement for gaining popularity of Biri smoking among the people in general and the Government has contemplated serious restriction and imposing ultimate ban on smoking habit responsible as a giant killer. The AIR (sic-AO) cited proviso (a) and (b) to s. 5(2) of The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003. (iv) On account of carriage inward: As per accounts produced at the hearing stage, the assessee company has incurred an expenditure of Rs. 39,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegorized as payments to contractors. In fact, the payments made to the home workers can be categorized as 'wages' within the meaning of s. 17(1)(i) of the Act. Taxes are not deductible at source under s. 194C from this type of payments and for purported failure of which disallowance cannot be made under s. 40(a)(ia) of the Act. Therefore, I am of the opinion that the disallowance of this payments, which otherwise constitute allowable business expenditure, cannot be made for non-deduction of tax at source. Hence, the disallowance made by the learned AO is deleted. However, I am unable to accept the argument of the learned Authorised Representative in respect of the payments made to the Munshis. As per the submission of the learned Authorised Representative at present that Munshis are paid Rs. 240 for per one lakh Biris got bounded from the labourers. The Munshis are working on behalf of the assessee and keeping liaison between the assessee and the home worker. Their function is to look after or supervise the role of the assessee. No fixed salary or wage is being paid to them. Their payment depends on the total work done by the home workers working under them. Otherwise Munshis are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Munshis are also subjected to the provident fund regulations and are bound by the agreement entered with the various labour unions involved in the Biri manufacturing. Therefore, he contended that the learned CIT(A)'s contention that the payment made to the Munshis are covered under s. 194H is not justifiable. Therefore, he requested to delete the same. To substantiate this claim, he filed copies of the provident fund accounts maintained by the assessee company in respect of Munshis in the paper book. 7. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the fact that the Munshis are also part of the labourers and their payments are made on piece-rated workers at Rs. 240 per one lakh Biris in our considered opinion, this cannot be considered as commission as defined in Explanation (i) to s. 194H. Therefore, the provisions of s. 194H are not applicable in the present facts of the case. Hence, we set aside the orders of the learned CIT(A) and allow the ground taken by the assessee and dismiss the ground taken by the Revenue. 8. As regarding the second issue, i.e. commission payment to directors amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of employment for the work done in their capacity as whole-time directors, this commission should have been treated as an incentive in addition to salary, bonus and other perquisites. Therefore, in our considered opinion, the learned CIT(A) is justified in recording the same as not coming within the purview of commission or brokerage as defined in s. 194H nor a fee for professional or technical services as defined in s. 194J of the IT Act. Therefore, we find no infirmity in the orders of the learned CIT(A) on this issue. Therefore, this ground of the Revenue is dismissed. 13. Next issue is relating to the disallowance of sales promotion (prize coupons). On this issue, the learned CIT(A) has given the relief of Rs. 15 lakhs to the assessee by observing as under: "I have carefully considered the submission of the Authorised Representative and perused the assessment order. The learned AO has disallowed the expenditure on two counts, firstly no evidence in so far as the expenditure claimed was produced before the AO and secondly, the expenditure was not allowable because of the prohibition imposed on advertising tobacco products. However, in his submission, the learned Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for reimbursing the prize money from the assessee, the retailers had returned the prize coupons. Therefore, the assessee must have maintained those prize coupons. But no such coupon was produced before the AO or produced in course of hearing of the appeal. Thus, in absence of any such evidence, claiming excess expenditure in the name of inserting prize coupons in the bundles of Biris cannot be ruled out. In view of this fact and considering the volume of business of the assessee and in absence any supporting evidence, it will be proper to restrict the disallowance to Rs. 15,00,000 only against Rs. 46,03,324 claimed by the assessee. This ground is thus partly allowed." 14. Aggrieved by this, now both the assessee as well as the Revenue are in appeal before us. 15. At the time of hearing before us, the learned Departmental Representative has heavily relied on the orders of the AO and contended that the action of the learned CIT(A) in allowing an amount of Rs. 15 lakhs on this account is not justifiable as the assessee is unable to produce any evidence in support of the expenditure incurred by the assessee on this account. Therefore, he requested to set aside the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is not justifiable in the facts and circumstances of the case. Hence, he requested to delete the addition. 20. On the other hand, the learned Departmental Representative appearing on behalf of the Revenue, has strongly supported the orders of the Revenue authorities and contended that as per the accounts produced the assessee has incurred the expenditure on account of carriage inward and the assessee company was deducting tax at source on the amounts paid to several transport organizations as contract carriers. But the assessee has not deducted tax at source in respect of expenditure payable/paid to the transport contractors amounting to Rs. 5,94,567. Hence, he submitted that the action of the Revenue is justifiable in the facts and circumstances of the case. 21. After hearing the rival submissions and on careful perusal of the materials available on record, it is observed that the assessee had not deducted tax at source in respect of expenditure payable/paid to the transport contractors of the said amount. Therefore, we are of the considered opinion that the action of the Revenue authorities is justifiable. Thus, we find no infirmity in the order of the learned CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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