2011 (5) TMI 976 - AT - Income Tax

Challenged disallowance of commission & bonus to directors under sec. 36(1)(ii) for AY 2006-07 upheld. Disallowance under sec. 14A dismissed.

The appeal involved challenging the disallowance of commission and bonus paid to directors under sec. 36(1)(ii) for Assessment Year 2006-07. The Tribunal ... Deduction for bonus or commission to employee under Section 36(1)(ii) of the Income-tax Act - Distinction between remuneration deductible as business expenditure and distribution as dividend - Precedent and consistency in past practice as material for allowability - Binding effect of the Tribunal's decision in assessee's own case and its affirmation by the High CourtDeduction for bonus or commission to employee under Section 36(1)(ii) of the Income-tax Act - Distinction between remuneration deductible as business expenditure and distribution as dividend - Precedent and consistency in past practice as material for allowability - Binding effect of the Tribunal's decision in assessee's own case and its affirmation by the High Court - Deletion of the addition disallowing commission and bonus paid to directors - HELD THAT: - The Assessing Officer disallowed commission and bonus paid to the managing director and two directors on the ground that, being shareholders, the amount could have been paid as dividend and therefore was not allowable under Section 36(1)(ii). The Tribunal relied on the plain language of Section 36(1)(ii) and the factual matrix to hold that the commission was linked to performance and sales turnover and not payable by reason of shareholding; the exact commission amounts would not have been receivable as dividend by the recipients. The Tribunal's conclusion in the assessee's own case for Assessment Year 2005-06 was that the disallowance was not justified, a view later followed by the Tribunal in other assessment years and affirmed by the High Court of Delhi, which found no question of law. In the present appeal the AT observed that the issue was squarely covered by the Tribunal's earlier decision (upheld by the High Court) and by subsequent consistent Tribunal orders; accordingly the disallowance was deleted and the ground allowed in favour of the assessee. [Paras 8, 10, 11, 12, 13]Addition of Rs. 77,37,965/- disallowing commission and bonus to directors deleted; ground Nos.1-4 allowed in favour of the assessee.Non-pressing of contested ground - Disallowance under section 14A not pressed by the assessee - HELD THAT: - The assessee did not press Ground No.5 concerning the disallowance under section 14A. Consequently, the Tribunal recorded that the ground was not pursued and dismissed it for that reason. [Paras 14]Ground No.5 stands dismissed as not pressed.Final Conclusion: The appeal is partly allowed: the disallowance of commission and bonus paid to directors for Assessment Year 2006-07 is deleted following the Tribunal's earlier decision in the assessee's own case (affirmed by the High Court), while the challenge under section 14A was not pressed and is dismissed. Issues involved: Appeal against disallowance of commission and bonus paid to directors u/s 36(1)(ii) for Assessment Year 2006-07.Issue 1 - Disallowance of Commission and Bonus:The Assessing Officer disallowed &8377; 77,37,965/- paid to directors as commission and bonus under sec. 36(1)(ii) as it could have been paid as profit or dividend. The CIT(A) upheld this disallowance based on a previous decision for the Assessment Year 2005-06. However, the Tribunal reversed the CIT(A)'s order for the same issue in the Assessment Year 2005-06, holding that the commission paid to directors was not receivable as profit or dividend. The High Court also upheld this decision, stating that no question of law arises. The Tribunal's decision in the Assessment Years 2002-03 and 2007-08 also supported the allowance of commission and bonus to directors. Therefore, the disallowance was deleted in favor of the assessee.Issue 2 - Disallowance under sec. 14A:Ground No.5 regarding disallowance of &8377; 48,357/- under sec. 14A was not pressed by the assessee's counsel and hence, was dismissed.In conclusion, the appeal was partly allowed, and the disallowance of commission and bonus to directors under sec. 36(1)(ii) was deleted based on the Tribunal's decisions and the High Court's affirmation.