AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 557
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....uer of the Income Tax department. The Assessing Officer has relied upon the rate of plot allotted by PSIEC to various applicants in 1981. The assessee had declared the Long Term capital Gain in Rs. 1,54,78,000/-. 3. It is prayed that the order of the Ld. CIT(A) be cancel led and that of the assessing Officer be restored. 3. After hearing both the parties we find that during assessment proceedings the Assessing Officer not iced that assessee has sold a property on which capital gain was determined. However, it was not iced that Assessee Company has paid huge amount to the Directors on such sales, therefore, assessee was asked to explain and justify the payment of commission which were claimed as transfer expenses. In response, it was submitted as under: - 1. The company has sold out a land and building during the current assessment year. The total consideration was 400 lacs which has been received and deposited in company's bank account. The company was in the process to sell this property for the last many years and directors were putting their best efforts to have best deals for the company. It will not be out of place to mention that the sales amount which the company had ....
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.... Ld. CIT(A) found force in the submissions and decided the issue vide para 8, which is as under: - "8. I have gone through the assessment records, the submissions of the Counsel and the attached annexures. In my view, the contention of the Counsel that commission was to be paid to persons who arranged the sale is correct. The person who arranges a sale and need not be a property dealer and the directors who are the employees of the Company are not barred from acting as brokers. In the circumstances, the directors of the Company who arranged the sale of property could definitely be paid commission. The commission received by them has been taxed as income in their personal returns. In view of the facts & circumstances explained. I am satisfied that the disallowance of commission paid to directors at Rs. 48 lacs while computing Long Term capital Gain is not warranted and direct the Assessing Officer to al low further deduction of Rs. 48 lacs as transfer expenses. This ground of appellant is therefore al lowed." 7. Before us Ld. DR submitted that directors were being paid normal salaries, therefore, they were duty bound to do every thing for the company and there is no justification ....
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....9. Ld. counsel fur their submitted that payment of commission was claimed u/s 48 as an expenditure incurred directly relating to transfer of the assets and therefore, section 36(1) (ii) is not applicable. When a particular remuneration has been paid for extra services then provisions of section 36(1) (ii) cannot be attracted and in this regard he relied on the decision in AMB Metplast P. Ltd v DCIT 341 ITR 563 (Delhi) and Commissioner of Income- tax Vs Career Launcher India Ltd. (Del ) 358 ITR 179 10. We have considered the rival submissions carefully and do not find any force in the submissions of Ld. Counsel for the assessee. From the list of share holders filed before us it becomes quite clear that it is a closely held company. The total issued and paid up shares are 9000 out of which the following shares were held by the family of Shri Birinder Mohan Singh. S.No Name of the holder No. of shares 1 Birinder Mohan Singh 4249 2 Birinder Mohan Singh (HUF) 404 3 Mrs Kiran B.M. Singh W/o Mr. B.M. Singh 2300 4 Ms. Simran B.M. Singh D/o Mr. B.M. Singh 1401 5 Jagmohan Singh ( HUF) Karta of DR Jamiat Singh F/o B.M. Singh 341 Total 8695 Thus out of total of 90....
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....nth was not considered by the Directors to be inadequate in earlier years; (iv) that the increase in the company's profits by about Rs. 30 lakhs was due to the control of cloth having been lifted and not to any special exertion of the directors; and disallowed the payment of the commission as it was not incur red wholly and exclusively for the purpose of its business. 12. On the above facts, the Hon'ble Supreme Court observed as under:- "Held, on the facts, that the commission paid to the directors was not an expenditure incurred wholly and exclusively for the purpose of the appellant 's business under section 10(2)(xv) of the Indian Income-tax Act." After making the above observation it was held that commission paid to the director was not an expenditure incur red wholly and exclusively for the purpose of business In the present case since the Directors were al ready in receipt of remuneration as monthly salary, they were duty bound to various acts on behalf of the company. In any case no evidence has been brought on record to show what extra effort they have made to sell the property. For selling of property, various advertisements are required to be placed in news....
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....en payable to him as profits or dividend if it had not been paid as bonus or commission: 16. The above clearly shows that any bonus or commission paid to an employee for services rendered if the same was payable as dividend are not allowable. From this it becomes clear under which head the expenditure has been claimed is not material but the mandate of the provision is that if such commission was payable as dividend to the such persons then such commission is not allowable. Had the assessee company not paid the commission, the amount would have remained with the company which could have ultimately be paid to the directors only by way of dividend. Therefore, in our opinion the decision of Special Bench in the case of Dalal Broacha Stock Broking (P.) Ltd. v. ACIT (supra) is squarely applicable. The head note of that case reads as under:- "Section 36(1)(ii) of the Income-tax Act, 1961-Bonus or commission - Assessment year 2006-07-Whether any expenditure on account of payment of commission to an employee will be allowable as deduction under provisions of section 36(1)(ii) irrespective of fact whether employee is a shareholder or not or whether commission has been paid for some extra ....
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....e salary and if the amount of commission was not paid they would have become entitled to receive the dividend. The Ld. counsel had also relied on the decision of AMB Metplast P. Ltd v DCIT (supra) and Commissioner of Income-tax Vs Career Launcher India Ltd. (supra) for the proposition that in the circumstances of the case before us section 36(1)(ii) would not be attracted. 18. In the case of AMB Metplast P. Ltd v DCIT (supra), the directors were paid commission in terms of an agreement through which in addition to salary, 1% commission was required to be paid, therefore, it becomes clear that commission was payable as part of the directors salary as per the agreement entered into between the company and the directors whereas in the case before us, commission is paid by passing a Board resolution and is not part of the regular remuneration of the directors. Similar situation was there in the case of Commissioner of Income-tax Vs Career Launcher India Ltd. therefore, the ratio laid down in both these cases are not applicable. In view of the above discussions, we are of the opinion that Ld. CIT(A) has misdirected himself in allowing the relief by simply observing that there is no bar....
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....uch more than the prevailing govt. price. In view of this the meaning of fair market value U/s 55(2) should not be missed with govt reserve price as on 01.04.1981. The FMV as assessed by the competent valuer may please be adopted for capital gain liability." 20. The Assessing Officer was not satisfied from the reply and in order to find out the correct value of the property as on 1.4.1981 information was cal led from Punjab Small Industries and export Corporation Ltd (PSIEC). PSIEC informed the Assessing Officer that another plot in industrial area, Mohali was allotted at the rate of Rs. 46/ - per square yard on 12.7.1981. In the light of this rate and observations of the approved valuer that the normal value is 2 -3 times higher then the government allotment rates, the Assessing Officer estimated the fair market value by multiplying the amount of value as informed by PSIEC by three times i.e. 46 X 3 and adopted rate for 138/ - per square yard as fair market value as on 1.4.1981 and al lowed the indexation accordingly. 21. On appeal, the submissions made before Assessing Officer were reiterated and reliance was placed on some case laws. It was further emphasized that valuation re....