9911796707
|
Home
Issues:
1. Deductibility of incentive bonus in commercial profits calculation. 2. Adequacy of dividends declared under section 23A of the Indian Income-tax Act, 1922. Issue 1: Deductibility of incentive bonus in commercial profits calculation: The case involved a reference under section 66(2) of the Indian Income Tax Act, 1922, regarding the deductibility of "incentive bonus" provided by a private limited company manufacturing razor blades. The company devised a scheme to incentivize distributors and sellers by giving bonus based on sales. The bonus was shown as a liability in the company's books. Initially, the Income Tax Officer (ITO) allowed the deduction for the bonus, but later, a settlement required assessments based on actual payments made, not book entries. The ITO disallowed the provision for incentive bonus in one assessment year but allowed the actual payment. The Tribunal found the liabilities for incentive bonus were not bona fide and upheld the disallowance. The High Court concurred, stating that the liabilities were not genuine, and thus, could not be considered in calculating commercial profits for section 23A of the Income Tax Act. Issue 2: Adequacy of dividends declared under section 23A of the Indian Income-tax Act, 1922: The Income Tax Officer issued notices to the company for falling short in distributing dividends as required under section 23A of the Income Tax Act for three assessment years. Additional super-tax was levied for the shortfall in dividend distribution. The company's appeals were dismissed by the Appellate Authority and the Tribunal. The Tribunal found that the incentive bonus liabilities were not genuine. The company did not challenge this finding but argued that the bonus should be deductible in calculating commercial profits for section 23A. The High Court upheld the Tribunal's decision, stating that the liabilities were not bona fide, and thus, the company's provisions for incentive bonus could not be considered in determining commercial profits for section 23A. In conclusion, the High Court affirmed the Tribunal's decision that the incentive bonus liabilities were not genuine and could not be considered in calculating commercial profits for section 23A of the Indian Income Tax Act. The company's challenge was dismissed, and the decision was made against the assessee.
|
