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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: Shri M. Balaganesh
This appeal of the revenue arises out of the order of the Learned CITA in Appeal No.212/CIT(A)-XX/Cir-36/2011-12/Kol dated 04-10-2012 for the Asst Year 2004-05 passed against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
Shri.Debashish Banerjee, JCIT, the Learned DR argued on behalf of the revenue and none appeared on behalf of the assessee.
The only issue to be decided in this appeal is whether an addition could be made towards Commission paid to Directors pursuant to the terms of employment in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a joint managing director of a company named M/s Hindustan Sanitary Ware and Industries Ltd and drawing salary and commission. The assessee was in receipt of salary income and had offered salary income in the following manner in the return of income :-
Salary 25,92,000 Director’s Commission 7,45,091 -------------- 33,37,091 Value of perquisites 1,11,025 34,48,116 4.1 In the notes on accounts to the financial statements of the aforesaid company, in serial number 19, the computation of commission payable to joint managing director as a percentage of net profits was reflected. This commission is payable to the Joint Managing Director (assessee herein) based on the profits derived by the said company for the year ended 31.3.2004 and the same will be paid in financial year 2004-05 relevant to Asst Year 2005-06 subject to approval of the said payment in the annual general meeting by the shareholders of the company in accordance with the provisions of the Companies Act, 1956. The Learned AO sought to make an addition of Rs. 75,82,091/- being the commission due to the assessee based on the net profits for the year ended 31.3.2004 and brought to tax in Asst Year 2004-05 itself as salary is to be taxed on due or receipt basis whichever is earlier and salary includes commission. This was deleted by the Learned CITA by relying upon the decision rendered by this tribunal in the hands of the Managing Director of the aforesaid company Shri.Rajendra Kr. Somani and the decision of Hon’ble Calcutta High Court in the case of Sanjib Kumar Agarwal vs CIT reported in 310 ITR 295 (Cal) wherein it was held that the commission payable to the directors determined based on net profits of the company which gets approved in the subsequent assessment year would be taxable in the year in which the profits of the company were finalized and not in the year to which the profits of the company belonged. Aggrieved, the revenue is in appeal before us on the following grounds :- “1. On the facts & circumstances of the case, the ld. CIT(A)-XX, Kolkata has erred in deleting the addition of Rs.70,72,237/- whereas from the Tax Audit report (Annexure 5) enclosed with the assessment records of the company for the financial year 2003-04 that an amount of Rs.1,07,20,368/- was paid to the assessee, Mr. sandip Somany, Joint MD of the company towards Director’s remuneration including Salary, PF & Commission and was further noticed from the notes on accounts serial No.19 that Commission payable to the Chairman & Managing director for the year ended 31.03.2004 was Rs.75,82,091/-. As per section 15(a) of the Income Tax Act, any salary due from an employer whether paid or not is chargeable to tax under the head “salaries”and as per section 17(1)(iv) of the Act ibid salary includes commissions. In this case the Directors’ commission has been provided in the books of company in the F.Y 2003-04 relevant to the A.Y 2004-05.
2. The appellant craves leave to adduce addition and/or supplementary ground/grounds and to amend and/or alter the ground/grounds any time before or the of hearing of the appeal.”
The Learned DR vehemently supported the order of the Learned AO.
We have heard the Learned DR and perused the materials available on record. We find that the assessee being a Joint Managing Director of M/s Hindustan Sanitary Ware and Industries Ltd was in receipt of commission based on net profits of the company determined and finalized in the subsequent year on a consistent basis and has been offering the same as his income from salary in the year in which the profits of the company have been finalized and approved by the shareholders in the annual general meeting of the company in accordance with the provisions of Companies Act, 1956. During the assessment year 2004-05, the assessee has duly offered the commission income worked out in the manner stated supra amounting to Rs. 7,45,091/- . This is admittedly the commission entitlement of the assessee as a percentage of net profits for the year ended 31.3.2003 (Asst Year 2003-04) and the profits for which have been finalized by the company during financial year 2004-05 relevant to Asst Year 2004-05. Accordingly, the assessee has offered the same as salary income in Asst Year 2004-05 and this practice has been followed by the company year on year on a consistent basis and accepted by the revenue.
6.1 The disputed issue before us is with regard to the commission payable to the assessee amounting to Rs. 75,82,091/- based on the profits derived by the said company for the year ended 31.3.2004 and the same being paid in financial year 2004- 05 relevant to Asst Year 2005-06 subject to approval of the said payment in the annual general meeting by the shareholders of the company in accordance with the provisions of the Companies Act, 1956. We also find that the assessee had duly offered in Asst Year 2005-06 the commission income of Rs. 75,82,091/- based on the profits of the company for the year ended 31.3.2004 which got finalized in financial year 2004-05 relevant to Asst Year 2005-06. We find that this is squarely covered by the decision of Calcutta High Court in the case of Sanjib Kumar Agarwal vs CIT reported in (2009) 310 ITR 295 (Cal) wherein it was held as below:- “It may be pertinent to mention here that similar issue has been recently decided by Hon’ble Calcutta High Court in the case of Sanjib Kumar Agarwal vs. CIT(2009) 310 ITR 295(Cal). In this case also the appellant was a full time Director of a company. As per the conditions of service, the appellant was to received commission at the rate of one percent on the net profit of the company apart from the monthly salary and certain perquisites, which were allowed to him. The assessing officer held that a sum of rs.1,02,464/- relating to the period July 1, 1998 to March 31, 1989, accrued as income to the assessee and was liable to be taxed for the assessment year 1989-90. Hon’ble High Court held that the commission was taxable in the year in which the profits of the company were finalized and not in the year to which the profits of the company belonged. The facts of the case of the assessee are similar to the facts of this case. Therefore, the commission of rs.75,82,091/- shall be taxable in A.Y 2005-06 and not in A.Y 2004-05.” “After hearing the rival submissions, on careful perusal of the material available on record and keeping in view of the fact the learned Commissioner of Income-tax (Appeals) has allowed the appeal of the assessee respectfully following the jurisdictional decision of the Hon’ble High Court in the case of Sanjib Kumar Agarwal vs. CIT (2009) 310 ITR 295 ((Cal). We find no infirmity in the order of the learned Commissioner of Income-tax (Appeals). Therefore, we confirm the same ground raised by the revenue is dismissed.”
Respectfully following the decision of the Jurisdictional High Court stated supra, we are not inclined to interfere with the findings of the Learned CITA on this ground. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27 / 10/2015