TMI Blog2022 (4) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 36 (1) (ii) of Act. The ITAT also after considering the findings of the assessing officer and the CIT (A) had inter alia held that the payment of bonus or commission is not allowable as deduction under Section 36 (1) (ii) of the Act in the hands of the assessing company. In the absence of any substantial question of law, the appeals are liable to be dismissed. Hence, the present appeals along with the pending applications are dismissed. - ITA 492/2019 & C.M.No.23180/2019 and ITA 41/2020 & C.M.No.2840/2020 - - - Dated:- 13-4-2022 - HON'BLE MR. JUSTICE MANMOHAN AND HON'BLE MR. JUSTICE DINESH KUMAR SHARMA Appellant Through : Dr. Rakesh Gupta with Mr. Somil Agarwal and Mr. Anshul Mittal, Advocates. Respondents Through : Mr. Sanjay Kumar, Senior Standing Counsel for the Revenue. J U D G M E N T DINESH KUMAR SHARMA, J : 1. The SRC Aviation Private Limited has filed these two appeals i.e. ITA 492/2019 ITA 41/2020 under Section 260A of the Income Tax Act (hereinafter referred to as the Act ) assailing the Income Tax Appellate Tribunal s (ITAT) order in ITA Nos. 492/2019 ITA 41/2020 pertaining to assessment year 2011-2012 and 2014-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the revenue authority and since the payment of bonus has all along been accepted by the department, there was no reason to reject the same for these two years. 8. Learned counsel relied upon CIT v. Career Launcher India Ltd., (2013) 358 ITR 0179 (Delhi) and AMD Metplast Pvt. Ltd. v. DCIT (2012) 341 ITR 0563, Controls Switchgears Contractors Ltd v. DCIT 365 ITR 312 (Del) and CIT vs. M/s Bony Polymers (P) Ltd. ITA Nos.69/2011, 536/2011, 611/2011 1298/2011 order dated 18.01.2012. Learned counsel submitted that ITAT has wrongly relied upon Dalal Brocha Stock Broking Pvt. Ltd. v. ACIT (2011) 131 ITD 36 (Mum)(SB). 9. The learned counsel submitted that the SLP filed by the department in the case of CIT vs. M/s Bony Polymers (P) Ltd. was dismissed by the Supreme Court vide order dated 24.08.2012. 10. Learned counsel for the appellant submitted that the ITAT has committed a gross error by misinterpreting the provision of Section 36 (1) (ii) and has wrongly made distinction between the facts of the case relied upon by the appellants. 11. Learned counsel further submitted that by virtue of the order of the ITAT in this case, the company would be liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- .. (ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend fit had not been paid as bonus or commission. 18. The interpretation of Section 36 (1) (ii) of the Act has come up for discussion before this Court in several cases including AMD Metplast Pvt. Ltd v. DCIT 341 ITR 563 (Del) and CIT v. Career Launcher India Ltd. 358 ITR 179 (Del). 19. In Loyal Motor Service Company Limited v. Commissioner of Income Tax (1946) 14 ITR 647 (Bom.) it was inter alia 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-one. In the year in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g their profits by way of dividends, or shares of profits, they will distribute the amount to themselves, as salaried employees in their own company or partnership, as bonus. We are construing a taxation statute and the subject is entitled to have such a statue strictly construed in his favour. In my opinion, in placing a strict construction on this subsection, the sum expected under the expression such sum must be the same sum as is described by the expression Any sum paid as bonus or commission , and that an equivalent sum even in the two cases where by accident the bonus and the prospective dividend are the same, is not included in that construction. If that is the construction which is to be placed upon this sub-section, then the answer to the question is, that the whole sum of ₹ 4,130/- paid as bonus to the shareholder employees is allowable as deduction under the provisions of s. 10(2)(x). I answer the question referred to us in the affirmative. The Commissioner must pay the costs of this reference. Kania, J. in his judgment had elucidated and interpreted Section 10(2)(x) of the Income Tax Act, 1922 and observed: In my opinion, that the construction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend 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. (Emphasis supplied) 20. In AMD Metplast Pvt. Ltd. (supra) this court taking into account the above judgment and the peculiar facts and circumstances of the case inter alia held that consideration in the form of commission which was paid to Ashok Gupta was for services rendered by him as per terms of appointment as a Managing Director. 21. For the proper understanding, it is necessary to refer to the facts in AMD Metplast Pvt. Ltd. (supra). In this case Ashok Gupta was the Managing director of the appellant company and was paid commission of ₹ 25 lakhs. There was an agreement dated 1st April, 1997 between Ashok Gupta and the appellant company and under this agreement, Ashok Gupta was entitled to salary of ₹ 30,000/- per month and commission @ 1% of the annual turnover of the company in case it achieves annual sales of ₹ 10 crores. In case of a shortfall, the commission was payable @ 0.5%. The agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The bonus payment cannot be characterised as a dividend payment in disguise. The Tribunal has found that having regard to the shareholding of each of the directors, they would have got much higher amounts as dividends than as bonus and there was no tax avoidance motive. The quantum of the bonus payment was linked to the services rendered by the directors. It cannot therefore be said that the bonus would not have been payable to the directors as profits or dividend had it not been paid as bonus/commission. 20. The issue has been considered by this Court in AMD Metplast Pvt. Ltd v. DCIT (2012) 341 ITR 563 in the light of the judgment of the Bombay High Court in Loyal Motor Service Co. Ltd v. CIT (1946) 14 ITR 647 . It was observed that the judgment of the Bombay High Court (supra) does not assist the revenue and that so long as the bonus or commission is paid to the directors for services rend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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