TaxTMI 
TaxTMI 
2021 (8) TMI 942
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....on of Rs. 250 Lacs u/s. 36(1)(ii) made by Ld. AO while framing the assessment order has been deleted in the impugned order. Assessment Proceedings 2.1. During assessment proceedings, it transpired that the assessee paid director incentive of Rs. 250 Lacs to Shri Rustom Joshi. The Ld. AO proceeded to disallow the same u/s. 36(1)(ii) on the premises that Shri Rustom Joshi was holding 68% shareholding jointly with Shri Faraz Joshi. The provisions of Sec. 36(1)(ii) provide for allowance of any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. 2.2. The assessee explained that Shri Rustom Joshi was ....
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.... he was responsible for overall growth of the company. The incentive was paid since no remuneration was paid to him in earlier years. Further, similar payment was not made to other shareholders-cum-directors and therefore, the allegations had no basis. 2.5. However, rejecting assessee's submissions, the sum paid was disallowed and added to the income of the assessee. Appellate Proceedings 3. The Ld. CIT(A) concurred with assessee's submissions and deleted the impugned additions with following observations:- 5.2 The submissions of the Id. Counsel have been carefully considered. It was explained that the incentive paid to Mr. Rustom Joshi was for his services rendered as Managing Director of the appellant company. He....
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....f it had not been paid as bonus or commission; 5.3 The section talks about bonus or commission paid for services rendered where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. In this case, there is no dispute with regard to the fact that the amount has been paid to Mr. Joshi for the services rendered by him for a period of three years without taking any remuneration. The same could not have been paid to him as dividend for the reason that there are other directors who have not been paid any dividend or any incentive. Dividend is usually a return on the investment made by a person but in this case what has been paid to Mr. Joshi is in view of the services rendered b....
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..... In view of the facts and circumstances of the case, it is held that whatever incentive has been paid to Mr. Rustom Joshi is in view of the services rendered by him and it cannot be hit by the provisions of section 36(1)(ii) of the Income Tax Act. The addition made by the Ld.AO of Rs. 2,50,00,000/- u/s. 36(1)(ii) is deleted. This ground of appeal is Allowed. Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings & Adjudication 4. Upon careful consideration of material facts, it could be observed that other shareholders-cum-directors have not been paid any dividend/incentive during the year. Dividend is usually a return on the investment made by a person. However, in the present case, the incentive has bee....