DCIT 5(2), MUMBAI vs. KOHINOOR TELEVIDEO P.LTD, MUMBAI

ORDER

PER N.K. PRADHAN, AM

i. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing assessee’s appeal regarding disallowance u/s 40(a)(ia) of Rs. 13,99,370/- paid to HDFC Bank Ltd., towards credit card transaction though the payment was in the nature of commission and was liable to withholding tax? ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in partly allowing assessee’s appeal on payment of incentives to directors, amounting to Rs. 32,32,800/- even when work of director was not related to retail sale? He failed to appreciate that such payment amounted to distribution of dividend and was a colourable device.

2.1 We find that a similar issue arose Tata Teleservices Ltd.(supra). In that case, the assessee had arrangement with several banks whereby customers of assessee, who also held credit card of such banks, could make payment for communication services utilised by them from the assessee through credit card. The revenue authorities held that fee retained by bank was in nature of commission and, therefore, assessee ought to have deducted tax at source on such payment. The Tribunal held that payments to bank on account of utilisation of credit card facilities would be in the nature of bank charge and not in the nature of commission within meaning of section 194H. In view of the above, the Tribunal set aside the order of the authorities below.

2.2 We follow the above order of the Tribunal and uphold the order learned CIT(A) in deleting the addition of Rs. 13,99,370/- made by the AO.

“After considering the rival submission, I partly agree with A.O. as well as the appellant. The payments to directors of the company are governed by the provisions of section 40A(2b) of I.T. Act, therefore, while allowing / disallowing the payments made to the directors one has to primarily see the reasonableness of payments made to the directors. In the instant cases, it is noted that there had been an abnormal increase in the total payments made to the directors by way of salary and incentives, the total payments to the directors )including salary and inventive) has been more than double in ant of one stroke, which cannot be held reasonable, considering the fact that there is no corresponding abrupt increase in the turnover. However, considering the material fact that there had been no increase in remuneration of the directors from A.Y. 2004-05 which remain static at Rs. 12 lacs per annum., therefore, considering the normal rate of inflation / increase in the remuneration F@10% p.a., I consider it reasonable to allow 60% incentives (@10% hike in remuneration during last six years from A.Y. 2004-05). Accordingly, the disallowance of incentive is restricted to 40% of incentive payments. This ground of appeal is, therefore, partly allowed.”

3.1 We agree with the above order of the learned CIT(A) as the same is based on reasons.

Order pronounced in the open court on 21/12/2016