Madras High Court

The Commissioner Of Income Tax vs M/S. True Value Homes (India) Pvt. ... on 2 March, 2021

                                                                       T.C.A.No. 873 of 2013

                              IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                DATE: 02.03.2021

                                                    CORAM:

                                    THE HON'BLE MR. JUSTICE M.DURAISWAMY
                                                     AND
                                   THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI

                                               T.C.A.No. 873 of 2013


                     The Commissioner of Income Tax,
                     Chennai.                                              ... Appellant

                                                        v.



                     M/s. True Value Homes (India) Pvt. Ltd
                     TVH Triveni,
                     21-CV Raman Road,
                     Alwarpet, Chennai – 600 018.                          ... Respondent



                               Appeal preferred under Section 260A of the Income Tax Act,
                     1961, against the order of the Income Tax Appellate Tribunal, Madras,
                     "D" Bench, dated 18.03.2013 in I.T.A.No.1093/Mds/2011 for the
                     Assessment Year 2008-09




                               For Appellant   : Mr. M.Swaminathan

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                                                                            T.C.A.No. 873 of 2013

                                                  Senior Standing Counsel
                                                  and Mrs. V. Pushpa

                               For Respondent    : Mr.R.Sivaraman


                                                     JUDGMENT

(Judgment was delivered by M. DURAISWAMY, J.)

Challenging the order passed in I.T.A.No.1093/Mds/2011 in

respect of the Assessment Year 2008-09 on the file of the Income Tax

Appellate Tribunal, Chennai, ''D'' Bench (for brevity, the Tribunal), the

Revenue has filed the above appeal.

2.1 The assessee is a builder and flat promoter. During the year,

the assessee had executed projects at MRC apart from ongoing projects

in various places. In addition, the assessee had also earned profit on sale

of flat and land. The other income includes profit on sale of interior

income from wind energy generation and rental income. The assessee

filed its return of income for the assessment year 2008-09 admitting

total income of Rs.53,10,42,860/-. The case was selected for scrutiny

and notice under section 143(2) and 115WE(2), dated 21.08.2009 was

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served on the assessee. Thereafter, a notice under section 142(1) calling

for details was served on the assessee. Thereafter, after obtaining the

information, the assessment was finalised.

2.2 The item of dispute was disallowance under section 36(1)(ii)

and disallowance of deduction under section 801B(10). During the

year, major shareholding in respect of the assessee was held by

N.Ravichandran, to an extent of 95% and acted as Chairman and

Managing Director and the remuneration was paid at Rs.7,47,59,772/-.

The breakup of the same was Director's remuneration amounting to

Rs.2,40,00,000/- and the commission amounting to Rs.4,83,59,772/- and

perquisite and benefit amounting to Rs.24 lakhs was paid.

2.3 The Assessing Officer called for explanation as to why not

the commission to the Director, shareholders be disallowed under section

36(1)(2). The assessee submitted its reply stating that the Chairman

and Managing Director devoted full time in getting buyers also in

formulating strategic marketing decision. The Assessing Officer did not

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accept the same and held TPH was a brand in itself catering to premium

segment and did not require any marketing efforts on the part of the

assessee and assessee got number of marketing professional on its roles

ranging from Assistant General Manager Marketing, Senior Manager,

Manager, Chief Manager (Marketing). Consequently, the payment of

commission by the assessee is covered under section 36(1)(ii) and

therefore, an addition of Rs.4,83,59,772/- was added to the total income.

2.4 As regards, the disallowance of deduction under section

801B(10), the assessee had executed the project name TVH Rozalia and

claimed deduction under section 801B(10). The assessee has stated

vide letter dated 267.11.2010 that the conditions stipulated were

satisfied. As regards approval of the local authority, the assessee has

stated that the lands were approved by the CMDA vide permit dated

29.05.2006 and the Assessing Officer held that the approval was

obtained in the name of the Director Mrs. Kalaiarasi, who was not a

developer as the approval was in the name of the developer.

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2.5 Aggrieved over the order passed by the Assessing Officer, the

assessee filed an appeal before the Commissioner of Income Tax

(Appeals), who deleted the addition made under section 36(1)(ii) holding

that the said deduction could be made applicable only to employee who

receives commission and not a Director and there was no bar for the

Director of the company bing paid commission. As regards 801B(10)

deduction, the Commissioner of Income Tax (Appeals), held that the

asessee was entitled to the benefit of the same as developer of the same.

2.6 Aggrieved over the order passed by the Commissioner of

Income Tax (Appeals), the Revenue has filed an appeal before the

Income Tax Appellate Tribunal, and the Tribunal also confirmed the

order passed by the Commissioner of Income Tax (Appeals).

Challenging the order passed by the Income Tax Appellate Tribunal, the

Revenue has filed the above appeal.

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3.The appeal was admitted on the following substantial questions

of law:

“ (i) Whether on the facts and circumstances of the case, the Tribunal was right in upholding the order of CIT(A) in deleting the disallowance made by the AO under section 36(1)(ii) of the Income Tax Act?

(ii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the rclaim of deduction made by the assessee under section 801B(10) is to be allowed?"

4. When the appeal is taken up for hearing, Mr. M.Swaminathan,

learned Senior Standing Counsel appearing for the appellant fairly

submitted that the issues involved in the present appeal are covered by

the decision of this Court. The learned Senior Standing Counsel further

submitted that so far as the 1st question of law is concerned, the same is

covered by the decision of the Judgment of the Division Bench of the

Delhi High Court reported in (2012) 20 Taxmann. com 647 ( AMD

Metplast Pvt Ltd v. Deputy Commissioner of Income Tax] wherein

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the Delhi High Court held as follows:-

" ... 10. We fail to understand how the aforesaid observations assist and help the Revenue in the factual matrix of the present case. Ashok Gupta is the ManagingDirector and in terms of the Board resolution is entitled to receive commission for services rendered to the company. It is a term of employment on the basis of whichhe had rendered service. Accordingly, he was entitled to the said amount. Commission was treated as a part and parcel of salary and TDS has been deducted. Ashok Gupta was liable to pay tax on both the salary component and the commission. Payment of dividend is made in terms of the Companies Act, 1956. Dividend has tobe paid to all shareholders equally. This position cannot be disputed by the Revenue. Dividend is a return on investment and not salary or part thereof. Herein the consideration in the form of commission which was paid to Ashok Gupta was forservices rendered by him as per terms of appointment as a Managing Director. In view of the aforesaid position, we answer the question of law in negative and in favour of the assessee and against the Revenue. The appeal is accordingly allowed. No costs.

5. So far as the 2nd question of law is concerned, the same is

covered by the decision of the Hon'ble Division Bench of this court

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reported in 2013(255) CTR 156 [Commissioner of Income Tax v.

Sanghvi and Doshi Enterprise] wherein the Division Bench of this

Court held as follows:-

" ... 32 This takes us to the second question as regards the completion certificate. As already pointed out in the preceding paragraphs, the assessee had evidently completed the construction as early as 05.03.2006, a fact which is not disputed by the Revenue. It is also an admitted fact that the approval was granted for construction, both by the Chennai Metropolitan Development Authority and the local authority, namely, Chennai Corporation. The letter of the Chennai Metropolitan Development Authority according sanction to the project as early as 23.9.2003 clearly points out that the sanction was also subject to the approval by the Corporation. Thus, with the planning details being subjected to the approval by the Corporation as the competent local authority and it having certified as to the completion as early as 28.12.2007, we are satisfied that the completion being on or before 31.3.2008, the reliance placed on Explanation (2) to reject the assessee's case could not be sustained. In any event, given the fact that the approval, which is an administrative process, is purely at the hands of the Statutory Authority concerned,

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over which, the assessee could not have any control, the Explanation cannot, in any manner, have a negative effect on a factual aspect of the matter, namely, completion of the construction. Thus, in a case like this, where, the local authority, being the Corporation, had already certified about the completion of the project as per the approved plan, the fact that one of the Authorities, namely, Chennai Metropolitan Development Authority had issued a letter only on 13.6.2008, per se, cannot negative the assessee's claim for deduction. ...."

6. Further, the Commissioner of Income Tax (Appeals) in its

order has observed that the return filed by Shri.Ravichandran that he has

offered the entire commission for taxation and paid tax at the

maximum marginal rate without claiming any deduction. Therefore,

motive of tax avoidance is also absent.

7. On a careful consideration of the materials available on record

and also the judgments cited supra, it is clear that both the questions of

law are covered by the judgments of the Delhi High Court and this

Court. Following the same, we are of the view that both the questions

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of law have to be decided against the revenue. Accordingly, the

questions of law are decided against the Revenue and in favour of the