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2019 (1) TMI 1081 - AT - Income TaxDisallowance on account of Director s commission/bonus - addition under provisions of Section 36(1)(ii) - Held that - According to us, the section allowed deduction if the expenditure is on account of bonus or commission paid to an employee and for services rendered. Such sum would not even otherwise payable as profit or dividend. Assessee being newly incorporated, had recruited employees from other organisations based on educational qualifications and based on experience of such employees, which we have already narrated above. It is a fact that assessee has agreed to pay bonus only to its employees for the year under consideration to their continued employment and Shri Suresh Prabhala rendered services for the assessee and assessee in lieu of that has paid bonus in the month of January, 2009. Shri Suresh Prabhala was not a shareholder when the bonus/commission was paid to him and once he is not a shareholder and commission/bonus paid for the services rendered, the provisions of Section 36(1)(ii) mandates that the bonus is to be allowed. Admittedly, this bonus is not out of the earlier years accumulated profits. Hence, we confirm the order of CIT(A) and this issue of Revenue is dismissed.
Issues Involved:
1. Disallowance of bonus payment to Shri Suresh Prabhala under Section 36(1)(ii) of the Income Tax Act, 1961. 2. Granting of credit for tax deducted at source (TDS). Issue-wise Detailed Analysis: 1. Disallowance of Bonus Payment to Shri Suresh Prabhala: The first issue concerns the disallowance of a bonus payment made by the assessee to Shri Suresh Prabhala. The Revenue contended that the bonus paid was not allowable under Section 36(1)(ii) of the Income Tax Act, 1961, as it was paid to a Director who was also a shareholder. The Assessing Officer (AO) observed that Shri Suresh Prabhala held 50% of the shares of the assessee-company and thus disallowed the bonus payment of ?6,66,50,000/-. The CIT(A) deleted the disallowance, distinguishing the facts from the case of Dalal Broacha Stock Broking Pvt. Ltd. The CIT(A) noted that at the time of bonus payment, Shri Suresh Prabhala was not a shareholder, having transferred his shares to Mount Kellett Capital Management (Mauritius) Ltd., and Mount Kellett HK Holdings LLC before the bonus was paid. The CIT(A) also emphasized that the bonus was paid in connection with employment and not linked to shareholding. The Tribunal upheld the CIT(A)'s decision, emphasizing that the bonus was paid for services rendered and not as a profit or dividend. The Tribunal referred to the provisions of Section 36(1)(ii) and relevant case law, including the decision of the ITAT Pune in Arihantam Infraprojects (P) Ltd., which supported the view that such payments are allowable as deductions if they are for services rendered and not otherwise payable as dividends. The Tribunal also noted that the assessee had no distributable profits and the bonus was determined based on various parameters such as qualifications, experience, and industry trends. 2. Granting of Credit for Tax Deducted at Source (TDS): The second issue pertains to the short credit of TDS amounting to ?1,31,32,183/-. The assessee claimed full credit for TDS in its return of income, but the AO allowed only partial credit. The CIT(A) directed the AO to grant correct credit for TDS after due verification in accordance with CBDT instructions. The Tribunal directed the AO to allow the credit for TDS based on the reconciliation provided by the assessee and in line with the decision of the Hon'ble Kerala High Court in CIT vs. Smt. Pushpa Vijoy, which held that credit for TDS should be allowed in the assessment year in which the income is assessed. The Tribunal also referred to a similar decision by the Co-ordinate Bench in Surendra S. Gupta vs. Addl. CIT, supporting the assessee's claim for TDS credit. Conclusion: The appeal of the Revenue was dismissed, and the appeal of the assessee was allowed, subject to verification of facts regarding the TDS credit. The Tribunal confirmed the CIT(A)'s order on the bonus payment issue and directed the AO to grant correct TDS credit after verification. The judgment emphasized the importance of distinguishing between payments for services rendered and distributions of profits or dividends when applying Section 36(1)(ii) of the Income Tax Act, 1961.
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