INCOME TAX ACT, 1961

Section 36(1)(ii)

Business deduction under section 36(1)(ii) - Payment of bonus, commission, etc. - Assessee paid commission to two executive directors - Disallowance on the allegation that assessee had paid dividend in the garb of commission

Assessee-company claimed deduction of commission paid to two Executive Directors under section 36(1)(ii). AO denied deduction on the allegation that assessee had paid dividend in the garb of commission.Held: The allegation that assessee had paid dividend in the garb of commision was factually incorrect as assessee had, in addition, paid dividend, which was as high as 375%, to its share holders, (including two executive directors holding shares. The two Executive Directors had tremmendous technical and managerial experience and had contributed a great deal to the growth of business productivity of company. Also both the directors admitted payment of commission received and offered the same in their income tax returns and had paid at a maximum marginal rate. This clearly established the fact that there had been no tax avoidance motive behind payment of commission to directors by assessee-company and, therefore, deduction under section 36(1)(ii) was duly allowable.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 195

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