The Income Tax Appellate Tribunal, Mumbai bench held that commission paid to Managing Director and Working Director is deductible from the company’s total income.
The bench including judicial member Sri.Mahavir Singh and accountant member Sri.G.Manjunatha was hearing a departmental appeal in which the order of the first appellate authority deleting the disallowance made by AO of Rs. 84,00,000/- as commission paid to managing director and two his working director was challenged.
The fact of the case revolves around two working directors who were get remuneration including salary and commission of Rs.8400000/-.According to the AO commission paid to them can be treated as dividend since they are the shareholders of the company. Accordingly, the AO invoking the provisions of section 36(i)(ii) of the Income Tax Act, disallowed the expenditure and also following the similar disallowance made in preceding assessment years i.e. AY 2006-07 to 2011-12.
The Tribunal observed that impugned order of the Ld. CIT (A) reveals that the amount of salary plus commission paid to the directors has not been held to be excessive by the lower authorities. During that year AR’s contention that they received three crore as dividend and the company had 29 directors and out of four directors they paid commission to two working directors only.
On second appeal, the bench observed that the assesse had an expenses towards commission paid to managing director of the company and MD of the another company and commission was paid amounting to Rs.84, 00,000/- .Tribunal found that commission paid is apart from salary to director and the said commission is paid within the prescribed limit under companies Act 1956 and both the working directors are well qualified and look after general administration, Finance apart from research activity also production and marketing. Hence, it cannot be doubted that the payment of dividend was made in the guise of commission to the directors.
The bench checked the facts that the facts are not in dispute only legality of legal expenses was challenged by the Revenue. The fact of the case was that the expenditure was incurred for carrying on its business smoothly and therefore, was a deductible expenditure. Thus, the impugned order of the Tribunal is essentially a finding of fact.
The bench announced that once, the payments are within the due date of filing under section 139 of the Act, the payments are to be allowed as deduction and confirmed the finding of the CIT(A) and the issue of Revenue’s appeal is dismissed.
Read the full text of the Order below.
