TaxTMI 
TaxTMI 
2019 (4) TMI 560
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....cide this Ground No. 2 and the remaining grounds are rejected. 3. At the very outset, it was submitted by the learned AR of the assessee that this issue is covered in favour of the assessee by the tribunal order rendered in the case of ACIT vs. Mandovi Motors (P) Ltd. as reported in 8 Taxmann.com 225 (Bang). He submitted a copy of this tribunal order and [pointed out that Para 4.5 to 4.7 of this tribunal order are relevant in which the tribunal has followed the judgment of Hon'ble Bombay High Court rendered in the case of CIT vs. Sesa Goa Ltd., 316 ITR 399. Learned DR of the revenue placed reliance on the orders of the authorities below. 4. We have considered the rival submissions. We find that the dispute is regarding bonus paid to Mr. Abhijeet Shah, who is holding 34.62 % of the shares of the assessee company and is a director of the assessee company. It is also noted that Mr. Abhijeet Shah was paid salary also for the services rendered by him to the assessee company as a director and he was paid dividend also in respect of his share holding. The submissions of the assessee before CIT (A) are reproduced by CIT (A) in Para 8.2 of his order. This Para is reproduced herein bel....
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....s of the year under question. leave no doubt, that, no tax avoidance motive could be attached from the payment of bonus. The learned AO has only relied on the provisions of section 36(1)(ii) of the Act and stated that the expenses in question were hit by section 36(1)(ii) of the Act. There is no basis or material or evidence brought on record by the learned AO to support the contention that the bonus would have been paid as dividend to the shareholder. The Companies Act, 1956 contains the limitations and restrictions in the matter of payment of dividend and such discretion of the company either to pay or not to pay dividend cannot be assumed. The learned AO cannot allege that had the bonus not been paid, that would have necessarily been paid as dividend to the director shareholder. It could not be ignored that the Appellant company had substantial profits out of which dividend has also been declared. As far as law goes, both the Income-tax Act, 1961 and the Companies Act, 1956 recognise that managerial remuneration to Directors can be structured either as salary or commission/bonus or as a combination of both. as per the provisions of the Companies Act, 1956, dividend is t....
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....red by the directors. It cannot therefore be said that the bonus would not have been payable to the directors as profits or dividend had it not been paid as bonus/commission. Having regard to the above legal position and the factual findings recorded by the Tribunal we are unable to say that the Tribunal erred in holding that the bonus payment was allowable under section 36(1)(ii) of the Act. The substantial questions of law are answered in the affirmative. against the revenue and in favour of the assessee for both the years." The learned AO has placed reliance on the ruling of the Honourable Bombay High Court in the case of Loyal Motor Service Co. Ltd. v. CIT9. However the learned AO failed to appreciate that the Honourable High Court has held in the favour of the Appellant and clearly holds that if the shareholders are actually the employees of the Company and have been given bonus, based on the salary the amount paid cannot be refused. The above judgment also make it clear that in case of a shareholder-employee the provisions of section 36(1)(ii) shall come into play only in cases where a reasonable conclusion can be drawn that a dividend was payable by the company and tha....
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....y scope for the provisions of section 36(1)(ii) of the Act to come into play or for making a corresponding disallowance. The above makes it clear that a blanket disallowance of bonus paid to persons who are also substantial shareholders cannot be made by applying the provisions of section 36(1)(ii) of the Act. An informed and rational decision should be made after a realistic and detailed appraisal of the underlying facts and circumstances. Accordingly, we request your good self to direct the learned AO to delete the above disallowance under section 36(1) (ii) of the Act." 5. We find that in addition to various judgments cited before CIT (A) as noted above, learned AR of the assessee has cited before us the tribunal order rendered in the case of ACIT vs. Mandovi Motors (P) Ltd. (Supra). Para 4.5 to 4.7 of this tribunal order are relevant and hence, the same are reproduced herein below for ready reference.:- "4.5 We have heard the rival submission and perused the material on record. One of the conditions mentioned in section 36(1)(ii) is that the amount payable to employees as bonus or commission should not otherwise have been payable to them as profit or dividend. The p....