Commission to Whole Time Director is Part of "Salary", Subject to TDS u/s 192: ITAT [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) recently held that the commission given to the whole time director of the company was part of salary therefore which was subject to Tax deduction at source under section 192 of the Income Tax Act 1961.

Section 192 of the Income Tax Act 1961 defined every person responsible to deduct tax when they pay income under the heads of the salary.

The assessee Indofil Industries Limited is engaged in the business of manufacture and sale of chemical items. During the course of assessment proceedings of these three years, the Assessing officer(AO) noticed that the assessee has booked commission expenses payable to its whole-time directors.

The AO noticed that the assessee has not deducted tax at source from the above-said commission expenses under section  194H of the Income Tax Act 1961. He further noticed that the assessee had paid similar commission payments to the above said directors and the said payments have been disallowed under section  40(a)(ia) of the Income Tax Act 1961  for non-deduction of tax at source under section  194H of the Income Tax Act 1961. Assessee did not furnish any explanation before the AO in this regard and hence the AO disallowed the above-said commission expenses.

Krupa Gandhi and Vidhi Salot Counsel for the assessee submitted that the commission expenses are in the nature of Salary paid to the directors and hence TDS provisions of section 194H of the Income Tax Act 1961 would not apply to these payments.

Anne Varghese counsel for the revenue submits that TDS was liable to be deducted on commission expenses under section 194H of the Income Tax Act 1961.

After considering the contentions of both parties the division bench of ITAT comprising B.R. Baskaran, (Accountant) and. Kuldip Singh, (Judicial Member) allowed the appeal filed by the assessee and the disallowance made under section  40(a)(ia) of the Income Tax Act 1961  in all the three years in respect of commission expenses was deleted.

Further, the bench observed that the assessee is liable to deduct tax at source in respect of commission expenses payable to the whole-time directors under section 192 only, as the same shall form part of their salary payment only.

To Read the full text of the Order CLICK HERE

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