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TMI Blog2022 (4) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... t of bonus to a person specified under Section 40A(2)(b) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). He states that no business correlation in terms of business output or growth of business relating to the payment was shown by the Respondent/assessee. 3. He emphasizes that there is a distinction between a corporate entity and its directors. He states that if a huge amount is paid as a bonus to the Directors of a company, the corporate entity itself may not survive. He submits that The Payment of Bonus Act, 1965 prohibits grant of bonus. 4. Learned counsel for the appellant further states that in view of provisions of Section 36(1)(ii) of the Act, the sum paid to an employee as bonus is allowable only when such bonu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. 7. In any event, the interpretation of Section 36(1)(ii) is fairly well settled. The Bombay High Court in Loyal Motor Service Company Limited v. Commissioner of Income Tax (1946) 14 ITR 647 (Bom.) has held as under: "Now the facts as shown by the reference are that this company was formed by fourteen persons, thirteen of whom were originally owner-drivers of motor vehicles, the fourteenth member contributing in money. The thirteenth not only contributed their motor vehicles but also their services and accordingly become employees of this company. Besides the thirteen there are twenty-eight other employees making a total of forty-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profits or dividends if it had not been paid as bonus or commission. In the exception the words "such sum" can, in my opinion, only refer to the last and the only antecedent, which is "any sum" paid as commission or bonus. Therefore, unless the commission or bonus would be paid to the assessee as profits or dividends the exception to the allowance does not operate. Mr. Setalvad on behalf of the Commissioner has pointed put with considerable force that strictly construed there can hardly ever be a case which comes within the ambit of the exception. Sir Jamshedji Kangaon behalf of the assessee company suggests two such cases, viz., in the case of what is generally called a one-man company which is not unlawful under the Indian Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "sum". To find that out we must look to the first part of the clause. That refers to "any" sum. Reading the clause in that way 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 do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend or profit. I do not see any reason why any strained construction should be put on the plain meaning of the words of the clause. I therefore, agree with the learned Chief Justice with regard to the answer to be given to the question referred to us." 8. This Court in AMD Metplast Pvt. Ltd. V. DCIT, (2012) 341 ITR 0563 as well as in CIT v. Career Launcher India Ltd., (2013) 358 ITR 0179 (Delhi) has upheld grant of bonus by companies to its directors. Consequently, this Court is of the view that there is no bar on payment of bonus and the issue whether bonus is to be granted or not is essentially a question of fact. 9. In the present case, none of the authorities below have opined that grant of bonus to the Directors would either endang ..... X X X X Extracts X X X X X X X X Extracts X X X X
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