AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 209
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.... as 'not pressed'. 3. In ground of appeal No.1 the assessee has challenged the order of the CIT(A) in confirming the addition of Rs. 18,75,000/- on account of disallowance u/s.40(a)(ia) of the I.T. Act. 3.1 Facts of the case, in brief, are that the assessee is a Private Limited Company engaged in the business of Steel re-rolling. It filed its return of income on 08-09-2010 declaring total income of Rs. 9,50,360/-. During the course of assessment proceedings the Assessing Officer noted that the assessee has debited an amount of Rs. 18,75,000/- on account of commission paid to 4 directors of the company, the details of which are as under : Sr. No. Name Nature of Payment Amount Paid (in Rs.) 1 Anisha D. Tank Co....
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.... submitted that the Directors were paid incentive on adhoc basis and nomenclature given is commission which is factually an incentive formed part of the salary of the directors. Therefore, the addition made by the Assessing Officer u/s.40(a)(ia) is not justified. The copy of the Resolution passed by the company on 28-03-2010 was also filed before the CIT(A). 4.1 However, the CIT(A) was also not satisfied with the explanation given by the assessee and upheld the disallowance made by the Assessing Officer. While doing so, he noted that although the board has resolved that the commission of Rs. 18,75,000/- was to be paid in addition to the regular salary of the directors, however, this arrangement was applicable only for this A.Y. 2010-11. ....
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....his issue and upheld the disallowance made by the Assessing Officer. 4.2 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 5. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He reiterated the same submissions as made before the CIT(A) and submitted that as per provisions of section 17(1)(iv) the term "salary" includes "any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages". Therefore, in view of the above clear provisions any payment made to the director/employee of the company in addition to salary would constitute salary in the hands of the said Director/Employee. Therefore, even the commission paid to the directors of the assessee compa....
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....ent received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;" 5.3 Referring to the above definition he submitted that when any payment is made to any person for rendering any services in the course of buying or selling of goods or any asset or valuable thing, then the said payment is to be treated as Commission/Brokerage. However, in the present case, the assessee has made payments to its employee directors not for selling any goods or articles but for managing the affairs of th....
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.... We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee has paid Commission of Rs. 18,75,000/- to the 4 directors on which no TDS has been deducted for which the Assessing Officer disallowed the same u/s.40(a)(ia) of the I.T. Act which has been upheld by the CIT(A). It is the case of the Ld. Counsel for the assessee that in view of the clear cut provisions of section 17(1)(iv) the commission paid to the Directors partakes the character of the salary and therefore the provisions of section 194H are not applicable for such payment and therefore the authorities are not justified in invoking the provisions of section 40(a)(ia) to disallow the same. We find merit in the above submission o....
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....ctors should be treated as salary in their hands and treated accordingly and the provisions of section 40(a)(ia) are not applicable. 7.3 We find the Kolkata Bench of the Tribunal in the case of Jahangir Biri Factory Pvt. Ltd. (Supra) has held that commission paid to directors as per terms of employment for the work done in their capacity as wholetime directors is to be treated as incentive in addition to salary etc. and did not come within the purview of commission and brokerage as defined in section 194H or fee for professional or technical services as defined in section 194J and therefore the same cannot be disallowed u/s.40(a)(ia) of the I.T. Act. Similar view has been taken by the Kolkata Bench of the Tribunal in the case of Blue Sta....