Whether payment of every commission to a director will be covered by dividend distribution tax?
Respected Members
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Short note of today's case law for quick reference:
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[2024] 114 ITR (Trib) (S.N.) 7 (ITAT[Ahm])
[BEFORE THE INCOME-TAX APPELLATE TRIBUNAL — AHMEDABAD "D" BENCH]
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AMI LIFE SCIENCES P. LTD.
v.
ASSISTANT COMMISSIONER OF INCOME-TAX
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MS. SUCHITRA KAMBLE (Judicial Member) and MAKARAND V.
MAHADEOKAR (Accountant Member)
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July 15, 2024.
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1. The assessee company was involved into manufacturing of pharma intermediates.
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2. For A.Y. 2016-17, the assessee had paid a commission of Rs. 52.34 lakhs to a director of the assessee who held 32.78% of shares of the assessee.
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3. The A.O. took the view that it was only an arrangement to avoid DDT and deduction could not be allowed u/s 36(1)(ii).
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4. On appeal, it was held that: The commission paid for actual services rendered cannot be disallowed merely on presumption of tax avoidance.
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5. The A.O. had failed to provide any evidence that the assessee had made the payment of commission only to avoid DDT.
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6. On the contrary, the assessee had provided substantial evidence to prove service of the director with the facts that he was one of the 30 shareholders and one of the six directors who only has been paid commission.
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7. The book profits of the assessee during the period was Rs. 6.68 crores whereas assessee had given commission of Rs. 52.34 lakhs which was 7.83% of the book profits of the assessee.
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8. Further, it was noted that director has declared his total income of Rs. 2.74 crores and paid tax of Rs. 94.13 lakhs.
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9. The assessee has provided substantial evidence demonstrating the services rendered by the director and the resultant benefits to the assessee.
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10. The commission paid to the director was an allowable business expenditure u/s 36(1)(ii).
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11. That admittedly the assessee had undertaken the research work and had spent certain amount during the relevant assessment years on scientific research not being the capital expenditure in the nature of land and building.
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12. The A.O.’s reliance solely on the department of scientific and industrial research report without considering the detailed books of account and certification by chartered accountant was not justified.
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13. The principles of natural justice required that any reduction in the claim should be substantiated with clear reasons and the assessee should be given an opportunity to respond.
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14. The restriction of the weighted deduction u/s 35(2AB) by A.O. was not justified.