TMI Blog2019 (1) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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. - ITA No.2607/Bang/2018 - - - Dated:- 9-1-2019 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER For The Appellant : Shri Ravish Rao, CA For The Respondent : Shri D. Kiran, Jt.CIT(DR)(ITAT), Bengaluru ORDER This appeal by the assessee is against the order of the CIT(Appeals) dated 23.11.2016 for the assessment year 2013-14. 2. There is a delay of 571 days in filing this appeal. Originally application for condonation of delay along with affidavit has been filed wherein it was stated that there was a delay of 582 days. This was pointed out to the assessee s counsel. Accordingly he revised the condonation petition explaining the reason for delay in filing this appeal as follows:- AFFIDAVIT I Smt. Umadevi S Y, aged 49 years, residing at Hampi Nagar, Bengaluru, do hereby swear on oath as under that 1. I am a Director of the Appellant Company, namely, Candor Business S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany decided, at that moment, that the Company will not file an appeal against the order of Commissioner of Income Tax Appeals-2 who had dismissed the appeal. 12. Accordingly, the Directors of the Company prepared Revised Return for the Assessment Year 2013-14. Since the Revised Return becomes a delayed Return and it can be accepted, only, by the condonation of delay by the Principal Commissioner of Income Tax-2, Bengaluru, the Delay Condonation Application was also prepared. The above documents were submitted before the respective Authorities. 13. The Principal Commissioner of Income Tax-2, Bengaluru, however, dismissed the Delay Condonation Application as it is not maintainable before him. 14. The above situation put the Company in a dead lock. This made the Company to review the matters, once again, to proceed further in the matter. In the review the Directors decided to file an appeal against the order of Commissioner of Income Tax, Appeals-2, Bengaluru challenging the disallowance of bonus u/s 36(1)(ii) of the Act before the Income Tax Appellate Tribunal. 15. The Appellant has received the order of Principal Commissioner of Income Tax-2, Bengaluru rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the delay in filing the revised return. In view of this, the assessee decided to file appeal against the order of CIT(Appeals) before this Tribunal and filed appeal before this Tribunal on 17.09.2018 which resulted in a delay of 571 days. In my opinion, the assessee pursuing alternative remedy has to be considered as good and sufficient reason for filing the appeal belatedly before this Tribunal. The expression sufficient cause should be interpreted to advance substantial justice. Therefore, the advancement of substantial justice is prime factor while considering the reasons for condonation of delay. In this case on hand, the issue that arises for consideration on merits is with regard to the allowability of bonus paid to the director shareholders while computing income of the assessee. Admittedly, identical issue was considered by the Hon ble Delhi High Court in the case of AMD Metplast P. Ltd. V. DCIT 314 ITR 563 (Del), CIT v. Career Launcher India Ltd., 358 ITR 179 (Del) also in Chryscapital Investment Advisors (India) P. Ltd. v. DCIT, 376 ITR 183 (Del) , wherein it was held that bonus which was paid to the directors in their managerial capacity in accordance with the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be in receipt of profits or dividend had if not been paid as bonus or commission , thereby suggesting that the section prevents payment of bonus to shareholders who are rendering full time service to a Company. There was no guarantee or requirement for the assessee company to pay dividends for the year to the shareholders, hence it should not be claimed that the said amounts were paid as bonus instead of as dividends. The revenue authorities failed to appreciate that the facts of 2 judicial pronouncements Subodhchandra Popatlal vs CIT, (1953)24 ITR 566 (Bom) and Laxmandas Sejram vs CIT (1964) 54 ITR 763 (Guj) are not applicable to the case of the assessee. The assessee paid bonus to its Director shareholders under the obligation cast by their terms of appointment, which the lower authorities construed as bonus paid as a gift, reward or premium granted voluntarily ........ as a matter of grace and without consideration or obligation . The revenue authorities erred in emphasizing that bonus has been paid to persons directly interested and controlling the interests of the assessee company, as the payment of bonus was in no way a sharing of profits of the Company but an acknow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors has been brought on record even during the course of appeal. The AO has brought on record that out of ₹ 18,65,605/- distributed as bonus, ₹ 17,00,000/- constitutes the amount disbursed to the said 2 share holder directors, who in turn, constitute the entire share holding of the company and a paltry sum of ₹ 1,65,605/- has been distributed among 10 other employees, showing that this amount is covered by the provision of Section 36(1)(ii) and not allowable. The claim of the assessee that taxes have been paid by the share holders treating the said payment as remuneration will not satisfy the default pointed out as the assessee would have paid 30% tax plus surcharge etc., plus dividend distribution tax @ 15% u/s 115-O, (as the said amount is simply a distribution of profits in the nature of dividend). Whereas, the individual directors have paid tax only at the slab rates applicable. 11. The ld. DR relied on the order of the Special Bench of ITAT Mumbai, in the case of Dalal Broacha Stock Broking (P) Ltd vide order in ITA No.5792/MUM/2009 dated 22/6/2011, has held that such payments are not allowable u/s 36(1)(ii) read with Section 37(1). 12. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported by the order of Mumbai Special Bench in the case of Dalal Broacha Stock Broking (P) Ltd. (supra) . 14. However, there are High Court decisions in the case of CIT v. Career Launcher India Ltd. (supra), Chryscapital Investment Advisors (India) P. Ltd. (supra) and AMD Metplast P. Ltd. (supra) wherein it was held as follows:- Career Launcher India Ltd. (supra) Held, that it was not disputed regarding bonus (a) that the payment was supported by board resolutions, and (b) that none of the directors would have received a lesser amount of dividend than the bonus paid to them, having regard to their shareholding. Further, the directors are full-time employees of the company receiving salary. They are all graduates from IIM, Bangalore. Taking all these facts into consideration, it would appear that the bonus was a reward for their work, in addition to the salary paid to them and was in no way related to their shareholding. It was deductible under section 36(1)(ii). Chryscapital Investment Advisors (India) P. Ltd. (supra) Held, that the bonuses paid to the two shareholder directors in the preceding two financial years were in the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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