CIT Vs. K.L. STEELS PVT LTD

JUDGEMENT

(1.) THESE appeals have been preferred by the Revenue against the order of the Income Tax Appellate Tribunal dated 18.12.2009 which relate to assessment years 2005 -06 and 2006 -07. On 29.11.2010 while issuing notice the following order was passed by another Division Bench: CM No. 20890/2010 in ITA No. 1840/2010 Exemption is allowed, subject to just exceptions. CM stands disposed of. ITA Nos. 1840, 1846/2010 In both these cases, the issue relates to payment of commission made by the assessee to its Managing Director, in addition to salary. The same was disallowed by the Assessing Officer on two grounds, viz.,

(2.) THE respondent is a private limited company and one Raj Kumar Bardeja is their managing director. In addition to the fixed remuneration of about Rs. 4 lakhs per year, Raj Kumar Bardeja is entitled to 6% of the net profits as commission. The aforesaid amount has been paid depending on the net profit earned by the respondent -assessee. In the assessment year 2005 -06 and 2006 -07 Rs. 41,98,000/ - and Rs. 90,60,000/ - respectively, have been paid as commission. As limited notice has been issued by order dated 29.11.2010 we have not examined the question whether or not the said amount should be disallowed under Section 40A(2) of the Act.

(3.) ON the question of deduction of tax at source, the contention of the Revenue is that tax at source should have been deducted under Section 194H at the rate of 5% (it appears that w.e.f. 1.6.2007 the rate of tax has been increased to 10%). The respondent company had deducted TDS on the commission under the head salaries under Section 192 of the Act. The TDS deducted under Section 192 is at the normal rate which is much higher than either 5% or 10%. In these circumstances, we feel that the contention of the Revenue is hypertechnical. TDS has been deducted at a higher rate under Section 192 on the footing that the commission is part of salaries. Thus the contention of the Revenue that Section 40(a)(ia) should have been applied does not have any merit and has to be rejected. The appeals are accordingly dismissed.