Case Law Details
SRC Aviation Pvt. Ltd. Vs ACIT (Delhi High Court)
Facts- The appellant is a private limited company. Sh. Arvind Chadha and Sh. Anoop Chadha are two share-holders and directors holding 50% equity shares each since inception of the company. In the Assessment year 2011-2012, the company has paid bonus of Rs.1 crore each to both the directors. Similarly, in the assessment year 2014-2015 the company has paid bonus of Rs.1.5 crore each to both the Directors. Assessing Officer disallowed the same relying upon Section 36 (1)(ii) of the Act. The Assessing Officer was of the view that bonus was paid to avoid payment of dividend distribution tax.
Conclusion- The assessing officer and CIT (A) have given a concurrent finding that the assessee has paid the bonus in lieu of the dividend and therefore, the above sum is disallowed under Section 36 (1) (ii) of Act. The ITAT also after considering the findings of the assessing officer and the CIT (A) had 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.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
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 2014-2015 respectively.
2. The facts in brief are that the appellant is a private limited company. Sh.Arvind Chadha and Sh.Anoop Chadha are two share-holders and directors holding 50% equity shares each since inception of the company. In the Assessment year 2011-2012, the company has paid bonus of Rs.1 crore each to both the directors namely Sh.Arvind Chadha and Sh.Anoop Chadha. Similarly in the assessment year 2014-2015 the company has paid bonus of Rs.1.5 crore each to both the Directors. Assessing Officer disallowed the same relying upon Section 36 (1)(ii) of the Act.The Assessing Officer was inter alia of the view that bonus was paid to avoid payment of dividend distribution tax.
3. The Commissioner of Income Tax (appeal) in the appeal filed by the Assessee vide orders dated 24.03.2014 and 29.11.2016 confirmed the disallowance and took a view that had the impugned bonus not been paid to these two directors, the amount would have been paid to them as dividend.
4. The order of the CIT (A) was challenged before the ITAT. The Tribunal also agreed with the Assessing Officer and CIT (A) and upheld the order of assessing officer and CIT(A). Aggrieved by the order of the ITAT, the appellants have challenged the order before this Court.
5. The notice was issued and Mr. Sanjay Kumar, Senior Standing counsel accepted the noticeon behalf of the Department.
6. Rakesh Gupta, learned counsel for the appellant submitted that the appellant company had been paying bonus to the above working directors apart from the directors’ remuneration and the same was being allowed as deductible business expenditure and no disallowance was ever made in the previous assessment years. The remuneration including bonus was paid on the basis of Board resolution for the services rendered by the aforesaid two directors.
7. Learned counsel submitted that both the abovesaid directors declared the bonus as part of the ‘salary’ under Section 15 of the Act in their returns of income and the same were accepted and assessed as such in their assessments. The directors paid the taxes on their respective income at the highest tax rate. Learned counsel submitted that the assessing officer, CIT (A) and ITAT have committed a grave error by disallowing and wrongly relied upon Section 36 (1) (ii) of the Act. It was submitted that there has to be consistency in the view taken 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. 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 tax on this amount, whereas the directors have also paid the tax on such bonus amount in the highest slab tax rate. Learned counsel submitted that therefore on the same amount, there is incidence of double taxation,as the company as well as directors have been subjected to make the payment of income tax at the highest rate which is totally illegal.
12. Learned counsel reiterated that in order to have consistency in the order of the revenue, the disallowance made by the authorities below and the tribunal for the year 2011-12 and 2014-15 have to be set aside. It was also submitted that the company as well as the directors have paid tax in the highest bracket and therefore there is no question of escaping the income.
13. Sanjay Kumar, learned counsel for the department submitted that the present appeals are liable to be dismissed as there is no substantial question of law. Sh. Sanjay Kumar further submitted that the proposition of law is very well settled. It was submitted that in the present case there were only two directors and shareholders in the company. The amount paid to them as bonus is in fact a dividend. It was submitted that the bonus paid to Director (s) is only to avoid tax and to reduce profit of the company and to avoid payment of taxes. Learned counsel for the revenue submitted that in fact he relies upon the same judgments as relied upon by the learned counsel for the appellant. It was submitted that since the proposition of law is very well settled, the appeals are liable to be dismissed.
14. The short question involved in the present appeals are whether the amount paid to the two directors/shareholders in the assessment years 201112 and 2014-15 should be allowed as a deduction or should be included in the income of the company.
15. We have considered the submissions.
16. The scope of jurisdiction in Section 260A is very well settled. It is a settled proposition that ITAT is the final arbiter of the facts. High Court can interfere in the order of the ITAT only if there is substantial question of law or there is manifest illegality or it suffers from perversity. The general rule is that High Court should be slow in interfering into the findings of ITAT, unless it suffers from any of the grounds mentioned hereinabove.
17. Section 36 (1) (ii) of the Act provides as under:
“Other deductions.
36. (1) The deductions provided for in the following clauses shall be allowedin respect of the matters dealt with therein, in computing the incomereferred to in section 28-
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