TaxTMI 
TaxTMI 
2019 (3) TMI 277
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....unt of non deduction of TDS on Vehicle Maintenance." (iv) "The Ld. CIT(A) has erred on facts and in law in deleting the disallowance of expenses of capitalize nature of Rs. 56,07,180/- on account of repair/replacement of Aircraft parts." (v) "The Ld. CIT(A) has erred on facts and in law in deleting the disallowance of expenses of capitalize nature of Rs. 40,900/- on account of purchase of Inverter Battery." (vi) "The Ld. CIT(A) has erred on facts and in law in deleting the addition of disallowance of prior period expenses of amounting to Rs. 4,500/- and prepaid expense amounting to Rs. 11,342/-." (vii) "The Ld. CIT(A) has erred on facts and in law in deleting the disallowance of Rs. 29,53,348/- on account of interest paid on unsecured loan." 3. The assessee has raised the following grounds of appeal in ITA No. 1065/Del/2016 for the Assessment Year 2011-12:- "1. That the ld CIT(A) has erred in misunderstanding the facts of the case. 2. That the ld CIT(A) has further erred in confirming the disallowance made by the AP of Rs. 686970/- in the nature of renovation of tenanted premises, belonging to the Airport Authority of India, to make these usable for the business of the....
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....tion of the invoices for supply, he held that no tax is deductible on such payment under section 195 of the income tax act. He therefore held that there cannot be any disallowance of the above sum under section 40 (a) (ia) of INR 3 766725/-. The learned departmental representative also could not point out that whether tax is deductible or not when the goods have been supplied from outside India where nothing is shown that income is chargeable to tax in India. In view of this, we do not find any infirmity in the order of the learned CIT - A and accordingly ground number 1 of the appeal is dismissed. 7. Ground number 2 is against deletion of the addition of INR 5 68325 made by the assessing officer on account of non-deduction of tax at source on catering services. The contention of the assessee is that that catering charges are for supply of food to the aircraft at the airport on which VAT has been charged and TDS provisions are not applicable, as the food is not served to the passengers by the supplier but by the in-flight crew. 8. On hearing the parties, the brief fact shows that the payment is made only for the supply of foods but not for service of the food. Nevertheless, the ....
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....red expenditure on repairs and maintenance of defective aircraft parts of INR 5 607180 which has been held by the learned assessing officer as capital expenditure and therefore the same was disallowed. The learned CIT - A allowed the claim of the assessee holding it to be revenue expenditure and therefore the revenue is in appeal before us. The learned senior departmental representative reiterated the facts stated in the assessment order and stated that when there are parts, which are replaced in the aircraft, they are capital in nature. The learned authorised representative also reiterated the same facts stated before the learned CIT - A. 11. On hearing of the parties the facts noted that that these are the expenses incurred by the assessee for the replacement of various parts of an aircraft and stated that no new asset has come into an existent but the only the old aircraft has been prepared with new parts. The assessee also submitted that it is a current repair for the plant and machinery. Further, the learned CIT - A has clearly noted that by replacement of these parts the amount of expenditure is current repairs, no new asset has come into existence, and therefore the expendi....
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....It was further stated that the assessee for last several years and which was not disturbed have followed the system. The learned CIT - A holding that expenditure has been incurred by the assessee during the year and therefore the same is allowable in the current year and these are not prepaid expenses or prior period expenses. The learned senior departmental representative could not point out any infirmity in the order of the learned CIT - A. We have also seen that the assessee has received the bills during the year and the same has been admitted and approved by the assessee during the year. Even otherwise, these are the expenditure pertaining to the annual maintenance contract of the computers. The assessee has incurred this expenditure as and when the bill has been approved in the liability has been assumed by the assessee. In view of this we do not find any infirmity in the order of the learned CIT - A accordingly the ground number 6 of the appeal is dismissed. 15. Ground number 7 is with respect to disallowance deleted by the learned CIT - A of Rs. 2953348/- on account of interest paid on unsecured loan. The brief facts of the case was that during the course of assessment pro....
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....how it is less than the amount of interest paid by the assessee to its directors and related parties. In view of this we do not find any infirmity in the order of the learned CIT - A deleting the above disallowance on account of interest expenditure. Accordingly, the ground number 7 of the appeal is dismissed. 16. Accordingly, appeal of the revenue is dismissed. 17. Now we come to the appeal of the assessee. The ground number 1 of the appeal is general in nature and therefore it is dismissed. 18. The second ground of appeal is with respect to the disallowance made by the learned assessing officer of INR 6 86970/- in the nature of renovation of rented premises belonging to the airport authority of India. The facts show that the company has acquired lease premises and incurred capital expenditure on it . The nature of the expenditure are in the nature of partition panel, CPU trolley with hardware, table tops, pantry tabletop side panel, glass screen, sofa sets, electrical works and security systems. The total expenditure incurred was in the range of INR 6 86970. The assessee submitted that the property acquired by the assessee is a licensed property and airport authority can hav....
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....ch expenditure. If the expenditure have been incurred by the assessee on the he expenditure was towards false ceiling, fixing tiles, replacing glasses, wooden partitions, replacement of electric wiring, earthing etc same is allowable as revenue expenditure and other expenditure incurred on acquisition of furniture or plant and machinery such a security system same are capital expenditure. Accordingly, ground number 2 of the appeal of the assessee is set aside back to the file of the learned assessing officer with above direction. 20. Ground number 3 of the appeal is with respect to the disallowance confirmed by the learned CIT - A of INR 26,000 incurred towards the law, seat cover et cetera spent for security of the car treating it as a capital expenditure. The assessee has incurred the above expenditure for the security of the car when the gear locks are purchased and there is a change of seat covers only. The learned CIT - A has held that assessee has made a purchase of music system, gear locks, and seat cover in the new car purchased. Therefore, the same was held to be capital expenditure. The learned CIT appeal also directed the learned assessing officer to allow the depreciat....
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....pany. Resolution has been passed by them that on 31/3/2011 , INR 10,000,000 bonus will be paid to each of the directors of the company for the year ending 31/3/2011. He noted that it is apparent that this arrangement has clearly indicated that if this bonus were not paid to both the directors then they would have received it in the shape of profit or dividend. He further noted that no reasonable basis for payment of the commission has been mentioned in the resolution passed by the company and therefore it is linked neither to the sale of the company or performance of the directors. The learned CIT - A also noted that different decisions cited by the learned authorised representative are not comparable with the facts of the case of the assessee. He further noted that in none of the cases identical number of directors and shareholders received the bonus of equal amount was found. He therefore stated that since both the directors are holding 50% share therefore in any case Rs. 2 crore could have been paid as a dividend which clearly shows that the commission has been paid in lieu of dividend and not in lieu of services rendered. He further noted that the decision in the case of the....
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.... of them have been paid the commission of Rs. 1 crore each. Therefore, the company has claimed the deduction of INR 20,000,000 as bonus paid to the directors. The claim of the assessee is supported by the board resolution for payment of commission. Provisions of section 36 (1) (ii) of the act provides that Section 36(1)(ii) of the Income Tax Act, 1961 („Act' for short) provides that any sum paid to the employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission is deductible. This provision is an enabling provision allowing deduction o account of bonus or commission paid to employees. The said payment is to be made out of profits subject to the conditions mentioned in the section. Any expenditure incurred on account of payment of commission to a person other than an employee is not covered by this provision. However the deduction is also restricted, if such sum would not have been payable to him as profits earned /dividend , if it had not been paid as bonus of commission. Therefore it provides that, if the bonus/ commission is not paid to those shareholders, then....
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....the directors, they would have got much higher amounts as dividends than as bonus and there was no tax avoidance motive. The quantum of the bonus payment was linked to the services rendered by the directors. It cannot therefore be said that the bonus would not have been payable to the directors as profits or dividend had it not been paid as bonus/commission. Reliance was also placed on the decision of Hon'ble Delhi High Court in AMD Metplast (P.) Ltd. v. Dy. CIT.2012 TaxPub(DT) 1187 (Del-HC) :(2012) 341 ITR 0563. Loyal Motor Service Co. Ltd vs CIT (1946) 14 TTR 647 (Bombay), Metplast Pvt. Ltd vs DCIT (2012) 341 ITR 563)(Delhi), S.A. Builders Ltd. v. CIT (2006) 289 ITR 26 , Commissioner of Income Tax Vs Walchand & Co. etc.. (1967) 65 ITR 381 In the case of the assessee itself, the Hon'ble ITAT had directed the AO to look into similar payment and the AO, during the A. Y. had found the payment commensurate to the market price and allowed the same in full.(Copy of the relevant portion of the order of the Hon'ble '.TAT and the AO enclosedAnnexure-15 14.2 I have carefully considered the submission of the fact of the case , finding of the A.O and the submission of the L.d A.r. T....
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.... of Rs. 1 crore in any case, would have been paid to both the directors as profits or dividend if it had not been paid as bonus. Accordingly the finding of the Assessing Officer that it was apparently a device for reducing the overall tax effect in the of taxpayer appears to reasonable. It is a settle issue that if on considering the entirety of the facts and circumstances of the case if a reasonable conclusion can drawn that the dividend was payable by the company and if the assessee company instead of paying dividend had paid bonus to their directors share holders then such payment of bonus will be in lieu of dividend and the claim of deduction will not be allowable under section 36(i)(ii) of the Act . Moreover the fact of the case is identical and comparable with the fact of the case of Dalai Broacha Stock Broking Pvt. Ltd Vs. vs. ACIT I.T.A. No.5792/MUM/2009 (ITAT Mumbai - Special Bench). Respectively following the said judgment, I hold that the payment of bonus of Rs. 1 crore paid to the two directors, had been rightly disallowed by the Officer. Accordingly addition of Rs. 2,00,000,00/ made by the A.O is confirmed and ground no 13 taken by the appellant is dismissed." 28.....
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....y perused the facts of that particular case. The facts as stated in paragraph number 16 of the order where the assessee has paid Rs. . one crore on account of commission to three main directors. In para number 11 of the order, it is mentioned that the commission was not paid in shareholding pattern but was paid on account of services rendered by the directors of the assessee company. Further in para number 9 it is also mentioned that the remuneration was paid to only 3 directors out of 6 who had substantial shareholding in the company therefore it is apparent that the commission was paid to the directors would not have been earned by them in the capacity of the shareholder as dividend. Therefore, the facts of that case are quite different from the facts before us. 31. Further more in special bench decision of „Dalal Broacha Stock broking V. Additional Commissioner of Income Tax, Mumbai' - (2011) 10 ITR (Trib) 357 (Mumbai) (SB) the assessee company during the relevant year had paid commission to the tune of Rs. 40 lakhs to the three working directors. They are the only shareholders of the company and owned the entire share capital. During the assessment proceedings, the Asses....