Company not Liable to pay Tax on Payment of Commission to a Whole Time Director since the Director already Paid Tax: ITAT [Read Order]

Mumbai bench of Income Tax Appellate Tribunal (ITAT) has ruled that, the commission paid to a whole time director-cum employee cannot be taxable in the hands of the company since the director has already been paid tax.

Sole issue in the present case was that whether the company is liable to pay tax on the payment of commission to its whole time director-cum employee since the person already clear the tax liability.

In the instant case Assessee Company is engaged in the business of interior decorators, manufacturing, reseller and works contract and the company has two directors. Out of these one of them is a whole time Director of the Company. During the year the assessee company has paid a commission to the said director for the services rendered by him to the assessee company.

While completing the assessment proceedings for the relevant assessment year the Assessing Officer has added the commission paid to the above mentioned director under section 36(l)(ii) of the Income Tax Act 1961.

On appeal the CIT (A) also confirmed the addition made by the AO. Aggrieved by the order of the department the assessee was on appeal before the tribunal.

While considering the above narrated facts the tribunal bench comprising of Judicial Member Ravish Sood and Accountant Member R.C.Sharma observed that commission so paid is for the services so rendered by the director and in line the principles of commercial expediency and the same are paid as per the agreed terms in the board resolution and are also at reasonable rates. The division bench further found that the director is eligible to get the commission and the director also paid tax on the commission income received by company in his individual return.

“We also found that the director is a whole time director and an employee of the company. Further, director is a person with technical knowledge having a first class degree in Interior line which further substantiate the fact that Mr. Bhawarlal Sharma is a technical person and his capacity and ability in effecting business activities and that the commission paid is in accordance with the board resolution passed at the beginning of the year. We also found that Mr. Bhawarlal Sharma also paid tax on the commission income received by company in his individual return. Thus, there is no tax avoidance.”