TaxTMI 
TaxTMI 
2022 (4) TMI 693
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....ssment year 2011-2012, the company has paid bonus of Rs. 1 crore each to both the directors namely Sh. Arvind Chadha and Sh. Anoop Chadha. Similarly in the assessment year 2014-2015 the company has paid bonus of Rs. 1.5 crore each to both the Directors. Assessing Officer disallowed the same relying upon Section 36 (1)(ii) of the Act. The Assessing Officer was inter alia of the view that bonus was paid to avoid payment of dividend distribution tax. 3. The Commissioner of Income Tax (appeal) in the appeal filed by the Assessee vide orders dated 24.03.2014 and 29.11.2016 confirmed the disallowance and took a view that had the impugned bonus not been paid to these two directors, the amount would have been paid to them as dividend. 4. The order of the CIT (A) was challenged before the ITAT. The Tribunal also agreed with the Assessing Officer and CIT (A) and upheld the order of assessing officer and CIT(A). Aggrieved by the order of the ITAT, the appellants have challenged the order before this Court. 5. The notice was issued and Mr. Sanjay Kumar, Senior Standing counsel accepted the notice on behalf of the Department. 6. Mr. Rakesh Gupta, learned counsel for the appellant su....
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....n subjected to make the payment of income tax at the highest rate which is totally illegal. 12. Learned counsel reiterated that in order to have consistency in the order of the revenue, the disallowance made by the authorities below and the tribunal for the year 2011-12 and 2014-15 have to be set aside. It was also submitted that the company as well as the directors have paid tax in the highest bracket and therefore there is no question of escaping the income. 13. Sh. Sanjay Kumar, learned counsel for the department submitted that the present appeals are liable to be dismissed as there is no substantial question of law. Sh. Sanjay Kumar further submitted that the proposition of law is very well settled. It was submitted that in the present case there were only two directors and shareholders in the company. The amount paid to them as bonus is in fact a dividend. It was submitted that the bonus paid to Director (s) is only to avoid tax and to reduce profit of the company and to avoid payment of taxes. Learned counsel for the revenue submitted that in fact he relies upon the same judgments as relied upon by the learned counsel for the appellant. It was submitted that since the p....
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.... shareholder employees. It is to be noted that the quantum of bonus paid to each of the shareholder employees was by reference to their salaries and not to their stakes in the company. A tabulated result is set out in the application for this reference and is printed on p. 12 of the record. It is there shown that of the thirteen shareholder employees six employees got less bonus than they would have got as dividends if the sum of Rs. 4,130/- had been distributed by way of additional dividends. Five of them got more bonus than such dividends and in the case of two of them the figure works out the same. That is an accident in the sense that the bonus payment being referential to their wages and the dividends being referential to their shares have no relation to each other. Now the answer to the question referred to us depends on the construction that is to be placed upon para (x) of sub-s. (2) of s.10. It should be noted that the body of this sub-section provides an allowance and the qualifying part of it is by way of exception to that allowance. What is to be allowed is "any sum" paid to an employee as bonus or commission for services rendered and the exception is, where "such sum" ....
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....the plain meaning appears to be that when a particular amount was paid by way of bonus to an employee, if the same amount would have been paid to him as a shareholder as dividend or profit, the company cannot be allowed a deduction on the ground of payment of bonus. To put it in other words the clause is intended to prevent an escape from taxation by describing a payment as bonus, when in fact ordinarily it should have reached the shareholder as profit or dividend. The argument would be equally applicable in the case of a partnership as in the case of a limited company. This construction leads to no hardship. It does not allow a wrong payment of bonus to escape taxation. In the first instance the bonus in the hands of the employee is liable to be taxed, unless exempted by a special notification. Moreover, the proviso contains conditions under which if a wrong claim is made, the same can be investigated and disallowed. An illustration will perhaps make the position clear. Five persons in a firm realizing that the profits of the year were Rs. 50,000/- and they had an equal share in the profits of the business decide that instead of receiving Rs. 10,000/- each as the share of profits ....
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.... 7,20,000/-. 22. On the basis of the facts, the tribunal in this case had observed that Ashok Gupta had 9.98 % of the paid up share capital and the assessing officer had observed that appellant company had earned net profit of Rs. 1,20,03,950/- but had not paid any dividend. However, commission of Rs. 25 lakh was paid to Ashok Gupta. In the appeal before the High Court, the High Court took a view that as per the terms of employment Ashok Gupta was entitled to receive commission for services rendered to the company. The commission was treated as part and parcel of the salary and TDS had been deducted. Thus, the factual matrix of present case and AMD Metplast Pvt. Ltd. (supra) are totally different. 23. If we take the analogy in case of Loyal Motors Service Company Ltd.(supra) also, the basic object of Section 36 (1) (ii) is intended to prevent an escape from taxation by describing a payment as bonus. The simple test is that had the bonus or commission not been paid, it would have added to the profits or dividend of the company. Thus, the deduction is permissible only if the sum paid is bonus or commission for services rendered. 24. In the present case, there is not even an ....