Saktijit Dev, Judicial Member.-These cross-appeals-one by the assessee and the other by the Revenue-for the assessment year 2005-06 are directed against the order of the Commissioner of Income-tax (Appeals)-V, Hyderabad, dated February 27, 2009. Since common issues are involved, these appeals are being disposed of with this common order for the sake of convenience.

Assessee's appeal :

I.T.A. No. 529/Hyd/2009 : assessment year 2005-06

2. Ground Nos. 1 to 3 of the assessee's appeal relate to disallowance of commission payment of Rs. 3,93,061 to non-whole time directors.

3. Briefly stated, the facts are that the assessee is engaged in the business of publishing and selling books. For the impugned assessment year, the assessee filed its return of income declaring income of Rs. 3,67,70,240. The return filed by the assessee was picked up for scrutiny by issuing notice under section 143(2) of the Act. In the course of scrutiny, the Assessing Officer noticed that the assessee has claimed expenditure of Rs. 3,93,061 towards commission to non-whole time directors. The Assessing Officer further noticed from the annual report that commission to directors was paid as a percentage of net profit. The Assessing Officer therefore, requested the assessee to furnish the agreement with the directors, the details of services rendered by the directors, and whether such services were covered by the terms of employment. In response to the query made by the Assessing Officer, the assessee submitted that the commission payment to non-whole time directors was approved by a resolution of the Board and as per the provisions of the Companies Act, 1956. The assessee further clarified that no agreement was entered into with the directors in respect of commission payment. The Assessing Officer, after examining the Board's resolution, was of the view that the non-whole time directors had no contract of employment with the company. Therefore, the commission, not being contractual, its allowability has to be considered as per the provisions of section 37 of the Income-tax Act. The Assessing Officer observing that the assessee has failed to bring any material on record to prove that the non-whole time directors have rendered any services which resulted in the improvement of business of the assessee, opined that the commission paid as a percentage of net profit is nothing but distribution of profit. The Assessing Officer holding that there being no material to show that the commission payment was wholly and exclusively for the purposes of business, disallowed the same, and added it to the income of the assessee.

4. The assessee challenged the addition by filing appeal before the Commissioner of Income-tax (Appeals). Before the Commissioner of Income-tax (Appeals), the assessee contended that the term "salary" under the Income-tax Act as well as the Companies Act includes commission. The payment of commission having been worked out as per the provisions of the Companies Act, 1956 and is authorised by the board and approved by the members cannot be disallowed. The assessee contended that the board of directors take crucial decisions collectively and are collectively responsible for the growth of the company, and therefore, it is not for the Assessing Officer to evaluate their services for the company. The assessee further contended that the commission payment is an expenditure wholly and exclusively for the purposes of the company, and therefore, it is allowable. The Commissioner of Income-tax (Appeals), came to the conclusion that the assessee has not submitted any evidence to prove that the non-whole time directors have actually rendered services, which has resulted in enhancement of profit of the company during the relevant previous year. The Commissioner of Income-tax (Appeals), following the decision of the hon'ble Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT [1967] 63 ITR 57 held that the assessee having failed to prove regarding ren