Authorities Holding Public Auctions Must Disclose All Known Encumbrances and Related Litigation  ||  SC: Compensatory Allowances Must Be Included While Computing Overtime Wages U/S 59 of Factories Act  ||  SC: NGT Has No Jurisdiction to Decide Disputes Relating to Building Plan Violations  ||  SC: Evidence is Often Fabricated Using AI And False Allegations are Rampant in Matrimonial Cases  ||  SC: While Declining to Quash an FIR, A High Court Should Not Direct Police To Follow Section 41A CrPC  ||  Allahabad High Court: Recruitment Rules Cannot Override Compassionate Appointments  ||  Rajasthan HC: Single Blunt Blow Causing Grievous Injury is Not Attempt to Murder Without Intent  ||  Karnataka High Court Holds Mining Leases Granted in Violation of Rule 22-D are Void Ab Initio  ||  Supreme Court: Wait-Listed Candidates Have No Vested Right After List Expiry  ||  SC: Reserved Candidates Scoring Above General Cut-Off Must be Considered For Open Posts    

Gujral Design Plus Overseas Pvt. Ltd. Vs. DCIT - (Income Tax Appellate Tribunal) (05 Sep 2023)

Commission paid to Managing Director for services rendered by him as per terms of payment is eligible as deduction under Section 36(1)(ii) of IT Act

MANU/ID/1286/2023

Direct Taxation

The only issue to be decided in present appeal is as to whether the learned CIT(A) was justified in confirming the disallowances to Director's commission of profits amounting to Rs. 32,47,750 in the facts and circumstances of the instant case. The Assessing Officer (AO) invoked the provisions of Section 36(1)(ii) of the Income Tax Act, 1961 (IT Act) stated that, commission was paid in lieu of distribution of profits in the form of the dividend to the share holders. Accordingly, this commission would not be allowed as deduction. This action of the learned AO was upheld by the learned CIT(A).

The provisions of Section 36(1)(ii) of the IT Act per se could not be made applicable. Provision of Section 36(1)(ii) of the Act states whether any sum paid to an employee as bonus or commission for services rendered, whether such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. In other words, if the said commission payment is not made, then the very same sum would be available for distribution to him as profits or dividend. In the instant case, Mr. Feroz is only holding 5% shares in the assessee company and remaining 95% held by Mr. Mohit. Hence, the decision to declare dividend should be taken with the consent of Mr. Mohit and it is not left to the prerogative of the assessee alone who happens to be minority share holder in the assessee company.

Hence, in the facts and circumstances of the instant case, the payment of commission to the Director could not have been paid to him as profit or dividend. Hence, the provision of section 36(1)(ii) of the Act are not applicable at all. Further, High Court in the case of Control & Switchgear Contractor Ltd Vs. DCIT had held that, commission paid to Directors is eligible in the hands of the assessee company and they would not be hit by the provision of section 36(1)(ii) of the Act.

The High Court in the case of AMD Metplast Pte Ltd Vs. DCIT had held that, the commission paid to Managing Director for services rendered by him as per terms of payment is eligible as deduction under Section 36(1)(ii) of the Act. The learned AO is directed to delete the disallowance of commission made in the instant case.

Another Ground of the assessee is with regard to seeking appropriate credit for pre paid taxes and adjustment of refund that are due to the assessee. This requires factual verification and hence, the learned AO is directed to decide the same in accordance with law. The appeal of the assessee is allowed.

Tags : ASSESSMENT   DISALLOWANCE   CONFIRMATION  

Share :        

Disclaimer | Copyright 2026 - All Rights Reserved