{"id":4688,"date":"2012-04-10T07:44:45","date_gmt":"2012-04-10T07:44:45","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4688"},"modified":"2012-04-10T07:44:45","modified_gmt":"2012-04-10T07:44:45","slug":"cit-vs-united-breweries-ltd-karnataka-high-court-commission-to-cmd-for-personal-guarantee-may-be-treated-as-ploy-to-divert-funds","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/cit-vs-united-breweries-ltd-karnataka-high-court-commission-to-cmd-for-personal-guarantee-may-be-treated-as-ploy-to-divert-funds\/","title":{"rendered":"CIT vs. United Breweries Ltd (Karnataka High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (vijay_mallya_guarantee_commission.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nCommission to CMD for personal guarantee may be treated as “ploy to divert funds”
\n<\/strong><\/p>\n

The assessee claimed a deduction for the \u201cguarantee commission\u201d of Rs. 1.15 crores that it paid to its Chairman Shri. Vijay Mallya. The AO & CIT (A) disallowed the claim on the ground that the so-called guarantee was a mere signature on a document, not backed by specific assets and that as the commission payment exceeded Mr. Mallya\u2019s net wealth of Rs. 70 lakhs, it was an \u201cinnovative method of diverting income from the company<\/em>” and an \u201cunwarranted benefit<\/em>\u201d to Vijay Mallya. However, the Tribunal allowed the claim. On appeal by the department, HELD reversing the Tribunal:<\/p>\n

None of the bankers had obtained details of the assets & liabilities of Vijay Mallya in India or abroad. He stood guarantor in respect of total borrowings of Rs. 115 crores and received commission of Rs. 1.15 crores even though his net worth was hardly Rs. 70.47 lakhs. Also, as he was a NRI, the permission of the RBI ought to have been taken which was not done. The assessee paid the MD commission \u201con the pretext<\/em>\u201d of paying guarantee commission and it is a \u201cclear case<\/em>\u201d of \u201ca ploy to divert the income of the companies under his management<\/strong>\u201d. The payment was characterized as commission to overcome<\/strong> the RBI\u2019s directions, the provisions of s. 309 of the Companies Act and was not a lawful payment<\/strong> and could not be allowed as a deduction u\/s 37(1).\n<\/p><\/blockquote>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

None of the bankers had obtained details of the assets & liabilities of Vijay Mallya in India or abroad. He stood guarantor in respect of total borrowings of Rs. 115 crores and received commission of Rs. 1.15 crores even though his net worth was hardly Rs. 70.47 lakhs. Also, as he was a NRI, the permission of the RBI ought to have been taken which was not done. The assessee paid the MD commission \u201con the pretext<\/em>\u201d of paying guarantee commission and it is a \u201cclear case<\/em>\u201d of \u201ca ploy to divert the income of the companies under his management<\/strong>\u201d. The payment was characterized as commission to overcome<\/strong> the RBI\u2019s directions, the provisions of s. 309 of the Companies Act and was not a lawful payment<\/strong> and could not be allowed as a deduction u\/s 37(1). <\/p>\n

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