Case Law Details
Bonus and commission paid to the Managing Director as services rendered as per terms of appointment as Executive/Managing Director of a company is allowable business expenditure.
The Hon’ble Delhi High Court in the case of AMD Mertplast Ltd. reported in 341 ITR 563 has held that Managing Director in terms of Board’s resolution was entitled to receive commission for services rendered to the company. It was a term of an employment on the basis of which he had rendered services. The operative part of Hon’ble Delhi High Court judgment is reproduced below:-
“Held, allowing the appeal, that A was the managing director and in terms of the board resolution was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. A was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to all shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof.”
The facts of the present case are similar to the facts of AMD Metplast Pvt. Ltd. and therefore following the judgment of Hon’ble Delhi High Court, we hold that the amount of commission and bonus paid to the Managing Director was an allowable business expenditure. The facts for the assessment year 2007-08 & 2008-09 are same except the difference in the amount. Therefore, all the three appeals filed by the assessee are allowed and decided in favour of the assessee.
INCOME TAX APPELLATE TRIBUNAL, DELHI
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