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2019 (1) TMI 645 - AT - Income TaxDisallowance as bonus to director shareholders of the assessee company u/s. 36(1)(iii) - whether it is a dividend payment in disguise - Held that - The partners are duly qualified and they have participated in the day to day affairs of the assessee company and payment of bonus is duly authorized by the Board Resolution. Taking all these facts into consideration, the bonus was paid in addition to salary as a reward for services rendered by the two directors to the assessee company and it was in no way related to their share holdings in the assessee company. Further, it also cannot be considered as a dividend payment in disguise. Having regard to their qualification & experience and participation in the management of the assessee company, the payment of bonus has been made as part of salary in terms of Board Resolution which was linked to the services rendered by them. Accordingly, it should be allowed as a deduction while computing the income of the assessee. This issue was considered by the judgments cited supra as per which, when bonus has been paid to the directors for the services rendered and as part of a payment of employment which is to be allowed u/s. 36(1)(ii) - Direct the AO to allow the claim of assessee for payment of bonus as deduction while computing the income of assessee. - Decided in favour of assessee.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Allowability of bonus paid to director shareholders under Section 36(1)(ii) of the Income Tax Act, 1961. 3. Double taxation of the bonus amount. Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The appeal was delayed by 571 days. The appellant cited reasons for the delay, including pursuing alternative remedies and filing revised returns, which were ultimately not accepted by the Principal Commissioner of Income Tax. The Tribunal considered the reasons provided by the appellant as "good and sufficient" and emphasized that "substantial justice" should be prioritized over technical considerations. The Tribunal relied on the Supreme Court judgment in the case of Collector of Land Acquisition v. Mst. Katiji, 167 ITR 471 (SC), to condone the delay and admit the appeal for adjudication. 2. Allowability of Bonus Paid to Director Shareholders: The primary issue on merits was the disallowance of ?17 lakhs paid as bonus to the director shareholders under Section 36(1)(ii) of the Act. The appellant argued that the bonus was paid as part of the directors' remuneration according to their employment terms and was not a disguised dividend. The Tribunal referenced several High Court judgments, including AMD Metplast P. Ltd. v. DCIT, 314 ITR 563 (Del), CIT v. Career Launcher India Ltd., 358 ITR 179 (Del), and Chryscapital Investment Advisors (India) P. Ltd. v. DCIT, 376 ITR 183 (Del), which supported the appellant's claim that such payments are allowable as business deductions when paid in accordance with employment terms. The Tribunal noted that the directors were qualified professionals actively involved in the company's day-to-day operations and that the bonus payments were authorized by a Board Resolution. Therefore, the bonus payments were considered a reward for services rendered and not related to their shareholding. The Tribunal concluded that the bonus payments should be allowed as a deduction under Section 36(1)(ii). 3. Double Taxation of the Bonus Amount: The appellant contended that the bonus amount was taxed twice: once in the hands of the company by disallowance and again in the hands of the directors as salary. The Tribunal acknowledged this issue, noting that the bonus was included in the directors' personal tax returns and taxed accordingly. The Tribunal emphasized the legal principle that income should not be taxed twice, citing the ITAT Mumbai decision in Mrs. Bakhtawar B Dubash v. DCIT, Central Mumbai 2009-TIOL-288-ITAT-MUM, and SSKI Investor Services Pvt Ltd v. DCIT, Central Mumbai [2009] 34 SOT 412 (ITAT [MUM]). The Tribunal concluded that the bonus payments were legitimate business expenses and should be allowed as deductions to avoid double taxation. Conclusion: The Tribunal allowed the appeal by the assessee, condoning the delay and directing the Assessing Officer to allow the claim for the bonus payment as a deduction while computing the income of the assessee. The judgment emphasized the importance of substantial justice, the legitimacy of the bonus payments as business expenses, and the principle of avoiding double taxation.
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