Case Law Details
Renault Nissan Automotive India Private Limited Vs DCIT (ITAT Chennai)
Background: The Assessing Officer (AO) noted that Renault Nissan Automotive India Pvt. Ltd. had unpaid bonuses of ₹277.83 lakhs as of March 31, 2010. The AO disallowed this amount under Section 43B of the Income Tax Act, which mandates that certain deductions (including bonus) must be paid before the due date for claiming them.
Assessee’s Argument: The assessee argued that the unpaid amount was part of the variable pay, which is a component of the employees’ Cost to Company (CTC), and dependent on individual performance rather than company profits. They contended that since the company was incurring losses, the payment could not be classified as a bonus under Section 36(1)(ii).
CIT(A) Decision: The Commissioner of Income Tax (Appeals) upheld the disallowance made by the AO.
ITAT Ruling: The Income Tax Appellate Tribunal (ITAT) observed that Section 36(1)(ii) pertains to sums paid as bonuses or commissions to employees. The key test is whether the amount would have added to the company’s profits or dividends if not paid as bonus or commission. Since the variable pay was part of the employees’ remuneration and not linked to company profits, it should be considered a permissible deduction.
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