CIT vs. CTI SHIPBROKER INDIA PVT LTD

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ITA - 450 / 2012HC Delhi13 August 20122 pages
For Petitioner: ABHISHEK MARATHA
AI SummaryDismissed

What did the High Court hold?

The Tribunal correctly relied on Supreme Court and Delhi High Court precedents, stating that commercial expediency should be viewed from the assessee's perspective. The disallowance under Section 36(1)(ii) was not justified as there was no evidence to suggest the commission would have been paid as dividend.

What were the facts?

The Revenue appealed against the ITAT's order upholding the CIT(A)'s decision to disallow an amount of Rs. 2,07,69,150/- under Section 36(1)(ii) of the Income Tax Act. This sum was paid by the assessee company to an individual who was also a shareholder and Managing Director.

What were the issues?

Whether the commission paid to a shareholder and Managing Director was an allowable deduction or could be treated as a dividend payment. Whether the disallowance under Section 36(1)(ii) was justified.

Which sections of the Income-tax Act were involved?

Section 36(1)(ii),Section 40A(2)

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Cases cited in this judgment(2)Show list

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$-2 IN TIIIT IIIGII COT]II.T OF DI'LHI AT NF]W Dtr]I,III I'.lA 4s0120r2 ..... Appellant I'hrough: Mr. Abhishek Marailra, Sr' Standing Counsel with Ms. Anshul Shanla, Advocatc' VEISLIS C'I'I SI{IPBROKER INDIA PVT I,TD Through: None. (]ORAM: IION'BLIT MR. JUSTICE S. ITAVINDRA I}I'IAT IION'I}I,E MII. JTISTICE M.I,. MI]HTA ..... Itcspondcnt OI{DER "/, L3.08.2012 'l'hc only clucstion sought to bc ulged in support of this appcal by thc I{cvenue is "whcthcr thc'l'ribulal fcll into egor in uphotding thc CII'(A)'s order vis-A-vis clisall<rwancc asscssccl by thc AO to the tu'e of Rs.2,07,69,1501- undcr Scctio'36 (1) (ii) of tlie Incorne.Iax Act. Dgrilg the assessment yeal (2007-08), the saicl sum was sought to be adclcd back. It dcnotccl the amount paid by thc assessec company by onc shri J's' Kapoor who also held shares to the extent of 10%. I'Ic was also thc Marraging Director of thc colnpany in which a fonner cmploycr and threc othcr firtns werc shareholdcrs' 'fhc rccorcl cstablishcs that thc individual Shri J.S. Kapool had bccn in thc business of sl.rip broking for 20 ycars ancl r'csigned fron Islan<t shipbrokers Pte I;td', singapole, whcrc hc rvas cai-tling approximatc tl'5 Clorcs' 'I.his Co.rt noticcs that the ITAT has relied upon scvcral orclcls including those oI tlrc snprcrnc cour.t as well as this clourt suoh as AC:\|',t'. ]Jon,'l'olymers Pvt' I'td''36 sol' 456 (Dclhi) and cl't' y. walchctntt & ()onqtany (P) Ltcl. ' 65 I'[It 3 Ul among others' IrrI}onyPolymcrs,case(sullrct)'thisCourtlrasheldasfollows: ,,It is carclinal principle of latv ancl ylhile.ittdging the contnterciul expccliency q,f th; u*pintu'ihe ntatter necds to be looked inttt .fi'ont the poirt of t,ietri oJ'the orrursnu and not fi.om the poinl o.f viev, of revenue 'only. "'I'his tpis so helcl by Sttltreme Court in the decisions of CIT' tts' CI'I I g 2012:DHC:9783-DB

"i --. a wcilchcrncl & co. (P) Ltct. 65 ITR 381 and J.K. Woolen Marutfactutrers \)s. CIT' 72 I|'R 6I'2. Reventrc hcts rctisecl in its grouncls of appeal that the erytcnse to qttestiotx l.t)(ts hit by seclion 36 (1) (ii) also. LVe do rtot ttgree tvith this sectiort 36 (1) (ii) prottides thltt cottt-tttission v'ill not bc ullowecl as clcduction if ha:d it not been paid so. It tvould be paid as pro.fits or dividend. \'here is no basis or muterictl or evielence brought 'on' recorcl by Assessing Officer to support this, contention that the contmission y,oulcl haie been paid as diviclend to thc shcu"eholders Conzpanies Act, : 956 contains the limitcttions and restt'ictions in the mcttier of payment of clividend and such discretion of lhe compuny either to ltcry or not lo ltay dividend carutot be assunted. assessing oflicer cannol presume th'at had this commission not been paid this y,orilcl hcwe neiesscu'ily lteen pctid as clividend to the shureholders' T'here is no busis .fo,: this crsstuttption. T'htts, therc is no basis .'for applicability of seciion 36 (t) (ii) CBD7Cirailar No.55l relied upon Ity tcl. All cioarty states it ot after anrcndment of 1989, fact .of cDtnntission paynrcnt ctlone is esSential ctnd its excessivenes{i cun be seen ttncler" Soinn 40A (2) onty. We Jind thctt upplicability ttf section 40A(2)jsttotthecuseofAssessingofficet".]ivenolherwise, contrttission pcricl to the clirectors wcts pcu"t of rcnntneration of tlte dit.ector:; rts srtltrente court has helct in case of Gestetner Duplicutors - (P) Ltct. v. ctT 117 ITll I thar conmission paid us fixecl perccntage of turnover is nrothing but assessable as salary. T'lttts, section 36 (I) (i, has got no apphcZfion. Ft*ther the contention of the ossessec is also duly sultltoriia uy ilte decision of suprente co-t*t in the cuse of sh;hja;; Ncmcl & snnr. v.cIT 108 ITR 358 in vthich the Apex court helrl thctt conrntission ltcritl to the entployees is allotpctble und there is no neecl.for uny contt'ctciuat obligation ot' cxtrct Se,t1ces perfornrcd by the (tssessee. " 'l'his courl noticcs that as far as other two grounds afe conccrncd, thc judgment of tlrcCorrrtinCI,l,l,.Bs'lSt|ctjdhaniPov,ersLtcl,(I.1.ANo.1266120|0decidedorr 3 1.08.2010) covcrs thc issuc. As regards thc third ground i.e. the concemcd asscssrnent ycar in which thc dcduction has to be grantcd, the court sccs no inhrmity in the findings of thc CI'I (A) and IIAI. In view of the abovc, this Court does not discern any substantial question of law r in orclcr to entcrtain the present Appeal' 'fhe Reventtc's appcal is, therefole, dismissed' s. uAvIi)IRA BIIAT, J 2dr,-1LP*Q_. M.r,.x{rlIITxF)J AIJGUST l3,,20t2lvks/ 2012:DHC:9783-DB

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