Gayways Publicity (P.) Ltd. vs Commissioner of Income Tax

CM 4440/2009 in ITR 61/1992

For the reasons stated in the Application, same is allowed. ITR 61/1992

Following substantial question of law has been referred for the consideration of this Court: Whether on the facts and circumstances of the case, the Tribunal was right in law to uphold the disallowance of commission payments of Rs. 78,866 to two of its Directors namely S/Shri Brij Mohan, Surinder Mohan?

This was in respect of Assessment-Year 1983-1984. Similar issue came up for consideration in ITR No. 202/1987 in respect of Assessment-Year 1986-1987 which was disposed of is as follows:-

The Assessee paid to one of his directors some commission and the question that arose as a result of this was as follows:-

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in upholding the disallowance of Rs. 88,862?

According to the Assessee it was entitled to claim a deduction u/s 40(c) of the income tax Act, 1961 (the Act) in respect of the commission paid to the Directors. The Assessee further contended that section 40A(5) of the Act was not attracted to the facts of the case. It is this dispute that has been referred for our opinion.

In Commissioner of Income Tax, Bombay Vs. M/s. Indian Engineering and Commercial Corporation Pvt. Ltd., , the Supreme Court dealt with this issue and observed as follows:-

The employees concerned herein also happen to be directors. The provision in clause(c) of section 40 applies to directors among others. Of course, section 40(c) is applicable only to companies whereas section 40A(5) is applicable, to employees whether of companies or others. In the case of directors who are also employees, both the provisions will be attracted the higher of the two ceilings has to be applied.

In view of the this categorical view expressed by the Supreme Court, the Assessee will be entitled to the benefit of the higher of the two ceilings for the purposes of claiming a deduction. Since it is a commission payment, the provisions of section 40A(5) of the Act would not be attracted and section 40(c) of the Act would be attracted as held by the Supreme Court.

The reference is disposed of accordingly.

The Reference is answered in consonance with the Order dated 5-10-2007 in favour of the Assessee. Reference stands disposed of accordingly.