M/S. HAMILTON & CO. LTD. ,KOLKATA vs. DCIT, CIRCLE - 11(1), KOLKATA , KOLKATA

Date of concluding the hearing : February 26th , 2019 Date of pronouncing the order : March 20th ,2019 O R D E R Per J. Sudhakar Reddy :- This appeal by the assessee and is directed against the order of the ld. Commissioner of Income Tax (Appeals) - 4, Kolkata (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), 19.06.2018 on the following grounds: “

1. For that the ld. Commissioner of Income Tax (Appeals) has erred in confirming the disallowance made by the Assessing Officer u/s 36(1)(ii) of the Income Tax Act, 1961 of Rs.8,32,197/- as bonus & commission paid to the directors as per agreements of appointment with them and were also within the limit permissible under Company law.

2. For that the ld. Commissioner of Income Tax (Appeals) has erred in confirming the disallowances of bonus & commission to Directors by stating that these were not linked to any specific efforts and without going through the evidence filed before him.

3. For that the assessee craves leave to add, alter or amend any ground before or at the time of hearing.”

2. After hearing rival contentions, we find that section 36(1)(ii) of the Act reads as follows:

(ii) any sum paid to an 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;

M/s. Hamilton & Co. Ltd 3. We note that the payments in question was made to Mrs. Rekha Jalan and Mr. S.K. Jalan, who were directors of the assessee company. These payments were made pursuant to agreements for payment of bonus and commission copies of which were furnished to the Revenue. The payments were made within the limit prescribed by law. The CIT(A) upheld the disallowance on the ground that the agreements are generally worked. In our view, this is not a valid ground to make this disallowance. Agreements are to be understood in such a way in which both the parties to the agreement, desired and understood. Section 36(1)(ii) does not apply in this case. Hence, we allow the grounds of the assessee.

Kolkata, the 20th March, 2019.