2021 (12) TMI 830 - HC - Income Tax

Appeal Dismissed on Tax Deduction for Director's Commission

The court dismissed the appeal regarding tax deduction on commission paid to directors under the Income Tax Act. It was held that the Tribunal did not err ... TDS u/s 194H or 192 - Non deduction of TDS on provision for commission for the Chairman and the Managing Director (CMD) of the Company - disallowance under Section 40(a)(ia) - As per Section 192 of the said Act, TDS is deductible from salary payment only at the time of payment and not at the time of making provision and therefore no disallowance is called for in the given circumstances. CIT (A) accepted the contentions of Respondent and allowed this ground of appeal - Whether ITAT erred in holding that non-deduction of TDS under Section 194H by the Assessee company on commission payment to the directors is not liable for disallowance under Section 40(a)(ia) ? - HELD THAT:- We find that the commission paid to the CMD has been shown as part of salary in Form-16 for Assessment Year 2010-2011. Total salary paid for the Financial Year 2009-2010 as it appears from the impugned order is ₹ 1,72,15,959/- which includes commission for ₹ 1,08,00,000/- paid by assessee in the Assessment Year in question. Section 192 of the said Act, unlike other TDS provisions require deduction of tax at source under the head “Salary only at the time of payment and not otherwise.' We also find that the quantum of accrual of expenses is not disputed by Revenue and Shri Sharma also stated the same. Since Shri Sharma had in fairness stated that the quantum or accrual of expenses is not disputed, there cannot be any perversity in the order passed by CIT(A) or by ITAT in concurring with the findings of CIT (A). Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly - No substantial question of law. Issues:1. Tax deduction on commission paid to directors under Section 194H of the Income Tax Act, 1961.2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on commission payment to directors.3. Perversity in the order of the Hon'ble ITAT regarding the treatment of commission expenses in the audited books of accounts.Issue 1:The case involved a dispute regarding the tax deduction on commission paid to directors under Section 194H of the Income Tax Act, 1961. The Assessing Officer noted that the Respondent made a provision for commission for the Chairman and the Managing Director (CMD) but did not deduct TDS under Section 194H. The contention was whether this commission payment should be treated as salary covered by TDS provisions under Section 192 or as commission under Section 194H. The Respondent argued that since the CMD was a full-time employee, the payment was considered salary and TDS was deductible only at the time of payment, not at the time of making the provision.Issue 2:The issue of disallowance under Section 40(a)(ia) arose due to the non-deduction of TDS on the commission payment to the directors. The Appellant argued that the payment being in the nature of commission should have been covered under Section 194H for TDS deduction at the time of making the provision. However, the Respondent contended that the commission was part of the overall compensation/salary of the CMD, as evidenced by Form-16, and hence TDS was covered under Section 192 for salary payments.Issue 3:The question of perversity in the order of the Hon'ble ITAT centered around the treatment of the commission expenses in the audited books of accounts. The Appellant argued that the commission payment should have been subject to TDS under Section 194H at the time of making the provision, leading to disallowance under Section 40(a)(ia). However, the Respondent maintained that since the commission was shown as part of salary in Form-16 for the relevant assessment year, TDS under Section 192 was applicable only at the time of payment, not at the provision stage.The judgment concluded that the Tribunal did not commit any perversity or apply incorrect principles to the facts presented. It was determined that the questions raised did not pose any substantial question of law. The appeal was dismissed as devoid of merits, with no order as to costs.