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Facts
The Revenue appealed against the CIT(A)'s deletion of an addition of Rs.3,53,55,420/- made under Section 40(a)(ia) of the Income Tax Act. The Assessing Officer had disallowed this amount, contending that tax was not deducted on commission payments to directors as per Section 194H. The assessee, however, treated these payments as salary and deducted TDS under Section 192 of the Act.
Held
The Tribunal upheld the CIT(A)'s decision, finding the issue squarely covered by the assessee's own previous cases, which established that commission paid to whole-time directors constitutes 'salary income' under Section 192. TDS under Section 192 is deductible only at the time of payment, not provision. This position was previously upheld by the Mumbai ITAT Bench and the Bombay High Court.
Key Issues
Whether commission paid to whole-time directors should be treated as 'salary income' subject to TDS under Section 192 or 'commission' subject to TDS under Section 194H, impacting its disallowance under Section 40(a)(ia) of the Act.
Sections Cited
250, 143(3), 40(a)(ia), 194H, 192, 194J
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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
Before: SHRI G. S. PANNU & MS. MADHUMITA ROY
Appellant by : Shri Ankit Agarwal, C.A. & Ms. Yamini Khuteta, C.A. Respondent by : Shri T. James Singson, CIT-D.R. Date of Hearing 27.06.2024 05.07.2024 Date of Pronouncement O R D E R PER MS. MADHUMITA ROY – JUDICIAL MEMBER :
The instant appeal filed by the Revenue is directed against the order dated 17.10.2023 passed by the Commissioner of Income Tax (Appeals) – 26, New Delhi under section 250 of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the assessment order passed by the ACIT, Central Circle-14, New Delhi under Section 143(3) of the Act for Assessment Year 2021-22 whereby and whereunder the addition made under Section 40(a)(ia) of the Act to the tune of Rs.3,53,55,420/- has been deleted.
DCIT vs. Indofil Industries Ltd. Asst.Year :2021-22 - 2 - 2. The controversy arose out of the order passed by the Learned AO in disallowing the amount of Rs.3,53,55,420/- under Section 40(a)(ia) of the Act on the pretext that the tax was not deducted on payment of commission to the directors as per Section 194H of the Act. On the other hand the appellant has considered this payment as salary and deducted TDS on the same under Section 192 of the Act.
3. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that the case of the assessee is covered by the assessee’s own case in respect of Assessment Years 2014-15 to 2016-17 in the copy whereof has also been annexed to the paper book filed before us by the assessee. The Learned DR has not been able to raise objection to such facts and submissions made by the Learned AR. After careful perusal of the entire records, we find that the issue is squarely covered by the assessee’s own case in respect of Assessment Years 2014-15 to 2016-17 in ITA Nos.2292-2294/Mum/2022, as submitted by the Learned AR. While dealing with the identical issue the Tribunal has been pleased to pass the orders in favour of the assessee with the following observation : “6. We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has misread the common order dated 21.10.2016 passed by the Tribunal for AY 2009-10 and 2010-11 in ITA No.7408/Mum/2012 & others. A careful perusal of the order of the Tribunal would show that the commission payable to whole time directors has been held to be “Salary income” by the Tribunal liable to be deducted TDS u/s 192 of the Act. It has been further held that the TDS is liable to be deducted on the salary income u/s 192 of the Act, only at the time of making payment. The observations made by the Tribunal at page no.12, which was referred to by Ld CIT(A), relate to DCIT vs. Indofil Industries Ltd. Asst.Year :2021-22 - 3 - the payment of Rs.54.00 lakhs made to a director, who was not a whole time director. Such payment fell under the category of “Professional or technical services” liable to TDS u/s 194J of the Act. Hence the observations made by the Tribunal and the decision given on that issue are not related to the issue under consideration. Hence the Ld CIT(A) was not justified in referring to the provisions of sec.194J of the Act to the commission expenses payable to the whole time directors of the assessee company. Even otherwise, the provisions of sec.194J excludes from its ambit, the commission payments which are liable to TDS u/s 192 of the Act.
7. The impugned commission expenses have been made to the whole time directors and the assessee has deducted TDS on it u/s 192 of the Act, when the payments were actually made in the succeeding year. We noticed that an identical disallowance made in AY 2009-10 has been deleted by the ITAT and the order so passed by ITAT has since been upheld by Hon’ble High Court of Bombay, vide its order dated 16th December, 2021 passed in Income tax Appeal No.2027 of 2017. The relevant observations made by Hon’ble jurisdictional High Court are extracted below:- “2. The issue herein is regarding disallowance under Section 40(a) (ia) of the said Act for amount of Rs.1,08,00,000/-. The Assessing Officer had noted that Respondent had made a provision for commission for the Chairman and the Managing Director (CMD) of the Company for Rs.1,08,00,000/- at the year end but not deducted TDS under Section 194H of the said Act. The commission was paid to the CMD in the subsequent year, i.e., during the Assessment Year 2010-2011 after deducting TDS. According to Shri Sharma commission provision calls for disallowance under Section 40(a)(ia) in the impugned Assessment Year.
Before Commissioner of Income Tax (Appeals) (CIT (A)), respondent had contended that CMD was full time employee of the company and hence this payment was nothing but salary covered by TDS provision under Section 192 and under Section 194H of the said Act which deals with TDS on commission payments. As per Section 192 of the said Act, TDS is deductible from salary payment only at the time of payment and not at the time of making provision and therefore no DCIT vs. Indofil Industries Ltd. Asst.Year :2021-22 - 4 - disallowance is called for in the given circumstances. CIT (A) accepted the contentions of Respondent and allowed this ground of appeal
4. Shri Sharma has contended that this payment being commission in nature is covered by Section 194H of the said Act and hence TDS was deductible at the time of making provision at the year end and as Respondent had failed to do so, the same called for disallowance under Section 40(A)(ia) of the said Act.
5. Shri Kapadia tendered copy of Form-16 of CMD which is taken on record and pointed out that Form-16 of the CMD for the Assessment Year 2010-2011 showed that commission was part of overall compensation/salary of the CMD and hence TDS in respect thereof is covered under Section 192 of the said Act.
6. Having considered the memo of appeal and the orders annexed thereto and after hearing Shri Sharma and Shri Kapadia, we find that the commission paid to the CMD has been shown as part of salary in Form-16 for Assessment Year 2010-2011. Total salary paid for the Financial Year 2009-2010 as it appears from the impugned order is Rs.1,72,15,959/- which includes commission for Rs.1,08,00,000/- paid by assessee in the Assessment Year in question.
7. Section 192 of the said Act, unlike other TDS provisions require deduction of tax at source under the head "Salary only at the time of payment and not otherwise." We also find that the quantum of accrual of expenses is not disputed by Revenue and Shri Sharma also stated the same. Since Shri Sharma had in fairness stated that the quantum or accrual of expenses is not disputed, there cannot be any perversity in the order passed by CIT(A) or by ITAT in concurring with the findings of CIT (A).
8. Commissioner of Income tax, Delhi, Ajmer, Rajasthan and Madhya Bharat vs. Nagri Mills Co. Ltd.1, this Court has observed as under: "We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes 1 33 ITR 681 rsk 5/6 501-ITXA-2027-17.doc as to the year in which the deduction should be allowed. The question as to the DCIT vs. Indofil Industries Ltd. Asst.Year :2021-22 - 5 - year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953- 54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other."
4. We further find that the Learned CIT(A) also considered the issue being covered by assessee’s own case for A.Ys. 2014-15 to 2016-17 by Mumbai Bench of Tribunal.
5. From the order, it appears that the Mumbai Bench while passing the order in favour of the assessee relied upon the order passed by the Hon’ble High Court of Bombay upholding the order passed by the ITAT Benches of Mumbai in assessee’s own case for A.Y. 2009-10 on the identical issue.
6. Having heard the Learned Counsel appearing for the parties and having regard to the facts and circumstances of the case, respectfully relying upon the order passed by the Mumbai Bench in assessee’s own case as narrated hereinabove, we do not find any infirmity in the order passed by the Learned CIT(A) in deleting the addition made by Learned AO under Section 40(a)(ia) of the Act. The said order is found to be just
DCIT vs. Indofil Industries Ltd. Asst.Year :2021-22 - 6 - and proper so as to warrant interference. The Revenue appeal is, therefore, found to be devoid of any merit and dismissed.
In the result, appeal of Revenue is dismissed.