Tca/886/2015 Of Commissioner Of Income Stax v. M/S. True Value Homes

IN THE HIGH COURT OF JUDICATURE AT MADRASDATE: 06.07.2021 THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE R.HEMALATHA Commissioner of Income Tax,Corporate Circle 3(1)Chennai - 600 034.... Appellant/Appellant M/s. True Value Homes (India) Pvt. LtdNo.21, TVH Triveni, CV Raman Road,Alwarpet, Chennai – 600 018. ... Respondent/Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Madras, "C" Bench, dated 08.04.2015 in I.T.A.No.464/Mds/2015 forthe Assessment Year 2010-2011 against the order of TheCommissionerofIncomeTax,(Appeals)-III,ChennaiDated 23/10/2014 and made in ITA.No.1914/2013-14-CIT(A)-III forthe Assessment year 2010 – 2011 against the order of theAssistant Commissioner of Income Tax, Company Circle-III(2),Chennai. Dated 28/03/2013 in GIR No./PAN.NO. , for theAssessment year 2010 to 2011. Challenging the order passed in I.T.A.No.464/Mds/2015 inrespect of the Assessment Year 2010-2011 on the file of theIncome Tax Appellate Tribunal, Chennai, ''C'' Bench (forbrevity, the Tribunal), the Revenue has filed the above appeal. https://hcservices.ecourts.gov.in/hcservices/ 2.1 The assessee company is engaged in the business ofconstruction and sale of residential flat in and around Chennaiand also letting out property. The assessee company filed itsreturnofincomedeclaringataxableincomeofRs.23,86,06,430/-. The return was processed and the case wasselected for scrutiny. The scrutiny assessment was completed bymaking the additions. The additions resulted in an assessedincome of Rs.38.53 crores. During the year under consideration,the assessee company has paid an amount of Rs.2,66,41,878/- ascommission to Mr.N.Ravichandran, who is as the Chairman andManaging Director of the assessee company. According to theassessee, Mr.N.Ravichandran is a major shareholder withshareholding to the extent of 95%. As the above transactiondirectly contravenes the provisions of section 36(i)(ii), theassessee was requested to explain as to why the entire amount ofRs.2,66,41,878/- cannot be disallowed. Based on the saidreasoning, the Assessing Officer entire claim of expenses oncommission to the Managing Director. The assessment wsscompleted on 28.03.2013 under section 143(3). 2.2 Aggrieved over the order passed by the AssessingOfficer, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals) and the Commissioner ofIncome Tax by order dated 23.10.2014 allowed the appeal of theassessee following the assessee's own case for the assessmentyears 2008-2009 and 2009-2010 passed by the Income TaxAppellate Tribunal. 2.3 Aggrieved over the order passed by the Commissionerof Income Tax (Appeals), the Revenue has filed an appeal beforethe Income Tax Appellate Tribunal, and the Tribunal alsodismissed the appeal and confirmed the order passed by theCommissioner of Income Tax (Appeals). Challenging the orderpassed by the Income Tax Appellate Tribunal, the Revenue hasfiled the above appeal. 3.The appeal was admitted on the following substantialquestions of law: “ (i) Whether on the facts and circumstancesof the case, the Tribunal was right in deletingthe disallowance of expenditure on commissionpayment to the whole-time Managing Director,receiving fixed salary and other related benefitsand also holding 95% of total shares of theassessee company entitled for receipt of dividenddeclared by the assessee company under section36(1)(ii) of the Income Tax Act? (ii) Whether on the facts and circumstancesof the case, the Tribunal was right in holdingthat the whole time Managing Director of theassessee company who is in receipt of the fixedsalary and other salary benefits like otheremployees of the assessee company is not anemployee of the assessee company?" “ (i) Whether on the facts and circumstancesof the case, the Tribunal was right in deletingthe disallowance of expenditure on commissionpayment to the whole-time Managing Director,receiving fixed salary and other related benefitsand also holding 95% of total shares of theassessee company entitled for receipt of dividenddeclared by the assessee company under section36(1)(ii) of the Income Tax Act? (ii) Whether on the facts and circumstancesof the case, the Tribunal was right in holdingthat the whole time Managing Director of theassessee company who is in receipt of the fixedsalary and other salary benefits like otheremployees of the assessee company is not anemployee of the assessee company?" 4. When the appeal is taken up for hearing, M.Swaminathan,learned Senior Standing Counsel appearing for the appellant-revenue fairly submitted that the substantial questions of lawthat arose for consideration in the above appeal had alreadybeen decided against the Revenue and in favour of the assesseein the Division Bench of this court in the Judgment inT.C.A.No.873 of 2013 wherein the Division Bench held as follows:- " ........ 3. The appeal was admitted onthe following substantial questions of law: “ (i) Whether on the facts and circumstancesof the case, the Tribunal was right inupholding the order of CIT(A) in deleting thedisallowance made by the AO under section 36(1)(ii) of the Income Tax Act? (ii) Whether on the facts and circumstancesof the case, the Tribunal was right in holdingthat the rclaim of deduction made by the assesseeunder section 801B(10) is to be allowed?" 4. When the appeal is taken up for hearing,Mr. M.Swaminathan, learned Senior Standing Counselappearing for the appellant fairly submitted thatthe issues involved in the present appeal arecovered by the decision of this Court. The learnedSenior Standing Counsel further submitted that sofar as the 1st question of law is concerned, thesame is covered by the decision of the Judgmentof the Division Bench of the Delhi High Courtreported in (2012) 20 Taxmann. com 647 ( AMDMetplast Pvt Ltd v. Deputy Commissioner of IncomeTax] wherein the Delhi High Court held asfollows:- " ... 10. We fail to understand how theaforesaid observations assist and help the Revenuein the factual matrix of the present case. AshokGupta is the ManagingDirector and in terms of theBoard resolution is entitled to receive commissionfor services rendered to the company. It is a termof employment on the basis of whichhe had rendered service. Accordingly, he was entitled to the saidamount. Commission was treated as a part andparcel of salary and TDS has been deducted. AshokGupta was liable to pay tax on both the salarycomponent and the commission. Payment of dividendis made in terms of the Companies Act, 1956.Dividend has tobe paid to all shareholdersequally. This position cannot be disputed by theRevenue. Dividend is a return on investment andnot salary or part thereof. Herein theconsideration in the form of commission which waspaid to Ashok Gupta was forservices rendered byhim as per terms of appointment as a ManagingDirector. In view of the aforesaid position, weanswer the question of law in negative and infavour of the assessee and against the Revenue.The appeal is accordingly allowed. No costs................ 6. Further, the Commissioner of Income Tax(Appeals) in its order has observed that thereturn filed by Shri.Ravichandran that he hasoffered the entire commission for taxation andpaid tax at the maximum marginal rate withoutclaiming any deduction. Therefore, motive of taxavoidance is also absent. 6. Further, the Commissioner of Income Tax(Appeals) in its order has observed that thereturn filed by Shri.Ravichandran that he hasoffered the entire commission for taxation andpaid tax at the maximum marginal rate withoutclaiming any deduction. Therefore, motive of taxavoidance is also absent. 7. On a careful consideration of thematerials available on record and also thejudgments cited supra, it is clear that both thequestions of law are covered by the judgments ofthe Delhi High Court and this Court.Following the same, we are of the view that boththe questions of law have to be decided againstthe revenue. Accordingly, the questions of laware decided against the Revenue and in favour ofthe assessee. Hence, the Tax Case Appeal isliable to be dismissed. Accordingly, the same isdismissed. No costs." The questions of law that were decided in T.C.A.No.873 of2013 covers the questions of law that arise for considerationsin the present appeal. 5. Ms. Sriniranjani, learned counsel appearing for therespondent submitted that in view of the ratio laid down by theHon'ble Division Bench of this Court in T.C.A.No.873 of 2013,the appeal may be dismissed. 6. Having regard to the submissions made by the learnedcounsel on either side, following the ratio laid down by theHon'ble Division Bench of this Court in in T.C.A.No.873 of2013, dated 02.03.2021, the questions of law are decidedagainst the Revenue and in favour of the assessee. The Tax CaseAppeal is dismissed. No costs. Sd/- Assistant Registrar(CS IX) //True Copy// Sub Assistant Registrar Rj To 1. The Income Tax Appellate Tribunal, Chennai, 'C'' Bench. Chennai, 'C'' Bench. 2. The Commissioner of Income Tax, Appeals-III, Chennai. Appeals-III, Chennai. 3. The Assistant Commissioner of Income Tax, Company Circle-III(2), Chennai. Company Circle-III(2), Chennai. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.32210+1cc to Mr.G.Baskar, Advocate, S.R.No.31254 T.C.A.No.886 of 2015 SSD(CO)HS(29/07/2021)