Commission/bonus paid to the Directors of the assessee company for business expediency would not fall under section 36(1)(ii)

DCIT Vs. M/s CMR Design Automation Pvt. Ltd. (ITAT Delhi)- Assessee was paying Shri Mahesh Chandra as share holder a sum of Rs. 25 lacs per annum as salary. This compared very favourably with the salary being disbursed in the industry in which the assessee was placed. Moreover, all disbursements to Sh. Mahesh Chandra was cleared by Board Resolutions. The profit of the assessee company has also arisen phenomenally during the year. In other words, commission and bonus paid to Sh. Mahesh Chandra was an incentive, which was directly related to the profitability of the company.

TDS was also deducted on the incentives paid to Shri Mahesh Chandra. In such circumstances, we agree with the Ld. Commissioner of Income Tax (Appeals) that the provision of section 36(1)(ii) could not have been invoked. The case laws referred viz. ACIT vs. Bony Polymers (P) Ltd. 36 SOT 456 and C.I. T. vs. Autopins (India) 92 ITR 161 (supra) also support the case of the assessee. Ld. Commissioner of Income Tax (Appeals) has given a correct finding that payments were reward to give employee an incentive for the good work done by him. Thus, these expenses were incurred for the purpose of business expediency and for improving the working of the assessee.

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘B’ NEW DELHI

ITA No. 493/Del/2011
Assessment Year: 2006- 07

DEPUTY COMMISSIONER OF INCOME TAX
Vs

M/s CMR DESIGN AUTOMATION PVT LTD
Dated: July 21, 2011

ORDER