Candor Business Solutions P. Ltd. Vs ITO (ITAT Bangalore)
Conclusion: Where bonus has been paid to directors for the services rendered and as part of a payment of employment, deduction of the same was to be allowed u/s. 36(1)(ii).
Held: AO disallowed amount of bonus to director-shareholders of the assessee company u/s. 36(1)(iii). In the present case, bonus was paid in addition to salary as a reward for services rendered by the two directors to assessee company and it was in no way related to their shareholdings in assessee-company. Further, it also could not be considered as a dividend payment in disguise. Having regard to their qualification & experience and participation in the management of assessee-company, the payment of bonus had been made as part of salary in terms of Board Resolution which was linked to the services rendered by them. Accordingly, it should be allowed as a deduction while computing the income of assessee u/s. 36(1)(ii).
FULL TEXT OF THE ITAT JUDGMENT
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 Solutions Private Limited and am well aware of the full facts of the case.
2. The Appellant Company filed its Return of Income under the provisions of Income Tax Act, 1961 (herein referred to as ‘Act’) for the Assessment Year 2013-14, Previous Year and Accounting Year being 2012-13, on 30-09-2013.
3. The above Return of Income was processed u/s 143(3) by the Income Tax Officer, Ward 2(1)(1), Bengaluru and passed an order vide order dated 30-06-2015.
4. In the above Assessment Order the Learned Income Tax Officer disallowed the expenditure claimed under the head salaries, which included bonus paid to Directors to the extent of 17,00,000/-, under section 36(1)(ii) of the Act.
5. The Appellant Company challenged the above disallowance before the Commissioner of Income Tax Appeals-2, Bengaluru who dismissed the Appeal vide order dated 23-11- 20 16.
6. This has resulted in taxation of Rs. 17,00,000/- at 30% in the hands of the Company and by virtue of this, the refund available to the Company was reduced by Rs 5,25,368/-.
7. The Directors of the Company, on the other hand, had included the bonus amount of Rs. 17, 00,000/- in their respective Income Tax Returns during the Assessment Year 2014-15 and paid taxes @30%.
8. The above situation resulted in taxation of the bonus amount of Rs. 17, 00,000/- TWICE, once, in the hands of the Company by disallowance and secondly in the hands of the Directors, as bonus under the head salary.
9. At this stage, the Directors were guided that, an amount that has already been taxed in the hands of the Company, by disallowing that, an item, not an allowable expenditure, the same cannot be taxed in the hands of the Directors as ‘Bonus’. It is a well settled proposition of law that an amount can be taxed, only, ONCE and not TWICE. The above view was supported by the following judgments:
