DCIT Vs Abro Technologies Pvt. Ltd. (ITAT Delhi)
The issue under consideration is whether the commission paid to director in terms of employment is considered as part of salary?
there is no dispute on fact that the Directors were given commission for promoting sales and increasing the sale of the company by their efforts and over the period of time the assessee’s turnover has increased manifold and also the profit. Further, similar commission paid to the Directors in terms of same agreement has been allowed in the past by the Assessing Officer himself in orders passed in scrutiny proceedings u/s 143(3). If directors in terms of Board resolution are entitled to receive commission for rendering services to the company and if it was in terms of employment on the basis of which they have been rendering services, then such remuneration/ commission is part and parcel of salary. It is also not disputed that TDS has been deducted on such commission as salary. Accordingly, the Revenue’s appeal is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The aforesaid appeal has been filed by the Revenue against the impugned order dated 08.06.2016 passed by Ld. CIT(A)-I, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2012-13. In the grounds of appeal, the Revenue has raised following grounds:-
“1. The Ld CIT (A) has erred on facts and in law in deleting disallowance of Rs.1,92,80,954/- being commission on sales paid to the shareholder Director(s).
2 The Ld. CIT (A) has failed to appreciate that the shareholder director was entitled to dividend in view of accumulated profit available and the commission so paid is clearly prohibited by the provisions of section 36(l)(ii) of Income Tax Act, 1961.”
2. The facts in brief are that the assessee-company is engaged in the business of manufacturing of software sophisticated dynamic balancing equipment different in sizes and performance capabilities. Ld. Assessing Officer from the perusal of the tax audit report, noted that assessee has paid commission to its directors for sums aggregating to Rs.1,92,80,954/-. Ld. Assessing Officer held that in view of said 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 has accumulated profits, then the practice of giving bonus or commission cannot be allowed. He noted that company has reserves and surplus of Rs.3,95,74,613/-. Accordingly, he made the disallowance of entire commission paid to the Directors.
3. Before the Ld. CIT(A), it was explained that the commission paid to the Directors was based on percentage of sales turnover and same was approved by the Board of Directors that in accordance with Schedule-V of the Companies Act, 1956, the remuneration paid to the directors were as under:-
> Commission to Shri Atul Nath: 3% on the total sales including services and 10% on export sales.
> Commission to Shri Akhil Nath: 0.5% on the total sales including services and 5% on export sales.
> Commission to Shri Ashish Nath: 0.5% on the total sales including services and 5% on export sales.
Further, copy of agreement entered into by the assessee company with directors on 1st December, 2006 wherein
following functions were to be performed by the Directors:-
