| The Tax Publishers2020 TaxPub(DT) 3231 (Del-Trib) INCOME TAX ACT, 1961
Section 36(1)(ii)
Where directors of assessee-company were entitled to receive commission for rendering their services in terms of Board resolution and it also was in terms of their employment on the basis of which they were rendering services, such commission would be considered as part and parcel of salary and hence, the said commission paid by assessee to directors would be allowable.
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Business deduction under section 36(1)(ii) - Bonus or commission - Commission to directors in terms of employment -
AO noted that assessee-company paid commission to its directors. He further, noted that company had reserves and surplus. Accordingly, he concluded that in view of provision of section 36(1)(ii), employees who would otherwise be entitled to receive profit or dividend by virtue of their shareholding and the company had accumulated profits, then the practice of giving bonus or commission could not be allowed. Accordingly, he made disallowance of entire commission paid to the directors. Assessee submitted that the commission paid to the directors was based on percentage of sales turnover and same was approved by the Board of Directors in accordance with Schedule-V of the Companies Act, 1956. Held: There was no dispute that the directors were given commission for increasing and promoting sales of the assessee by their efforts and over the period of time the assessee's turnover increased manifold and also the profit. Further, similar commission paid to the directors in terms of same agreement, had been allowed in the past by the AO himself. Further, since the directors in terms of Board resolution were entitled to receive commission for rendering services to the company and it was in terms of their employment on the basis of which they were rendering services, such remuneration/commission would be considered as part and parcel of salary. It was also not disputed that TDS had been deducted on such commission as salary. Otherwise also, the payment of dividend was made in terms of Companies Act, 1956, which had to be paid to all the shareholders equally and dividend was basically a return of investment and not salary or part thereof. Accordingly, commission paid to directors was allowed.
REFERRED : CIT v. Career Launcher India Ltd. (2012) 250 CTR 240 (Del) : 2012 TaxPub(DT) 1743 (Del-HC) and AMD Metplast P. Ltd. v. Dy. CIT (2012) 341 ITR 563 (Del) : 2012 TaxPub(DT) 1187 (Del-HC).
FAVOUR : In assessee's favour.
A.Y. : 2012-13
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