Income Tax Appellate Tribunal - Delhi
Sheffield And Vermark Consultants Pvt. ... vs Assessee on 31 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'G' : NEW DELHI)
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
and
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA No.9/Del./2013
(Assessment Year : 2008-09)
Sheffield and Vermark Consultants Pvt. Ltd., vs. ITO, Ward 8 (2),
103, Jor Bagh, New Delhi.
Delhi - 110 003.
(PAN : AALCS1070L)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Ved Jain & Smt. Rano Jain, Advocates and
Shri Venktesh, CA
REVENUE BY : Shri Ramesh Chandra, CIT DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
The assessee has filed this appeal against the order of CIT (Appeals)-XI, New Delhi dated 19.09.2012.
2. The assessee company was incorporated on 21.08.2007 and was engaged in providing recruitment consultancy. For the year under consideration, gross receipts were shown at Rs.1,20,17,308/- against which the assessee has claimed expenses of Rs.1,19,60,183/-. The return of income filed on 29.09.2008 declaring loss of Rs.1,13,224/-. The Assessing Officer made addition of Rs.12,85,255/- by invoking the provisions of section 43B for the reason that assessee has not submitted evidence to 2 ITA No.9/Del./2013 show that actual payment has been made before filing the return of income of Rs.12,85,255/- as bonus. The CIT (A) confirmed the addition by holding as under :-
" Thus any expenditure on a/c of payment of commission to an employee will be allowable as deduction under 36(1)(ii) irrespective of the fact whether the employee is a shareholder or not, only it is subject to the condition that it is not in lieu of dividend.
In this case the appellant has stated that the amount in question was paid to four employees as incentive for services rendered. Any performance linked incentive would be covered under 36(1)(ii). The appellant is not correct in stating that 36(1)(ii) covers only bonus which is linked to and dependent upon profits of the employers. The section also covers commission or any amount paid for services rendered by an employee which also includes shareholder or ay person eligible to get dividend.
Further the company had not made any profits and therefore no dividend was declared. Therefore the amount so question would not be in lieu of profits or dividend and would therefore be covered by 36(1)(ii).
43B is clearly applicable to the amount paid as production incentive. The amount of Rs.12,85,255/- is confirmed. This ground of appeal is ruled against the appellant."
3. Now, the assessee is in appeal by taking the following grounds of appeal :-
"1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in disallowing Rs.12,85,255 under section 43B of the Income Tax Act,1961 ("the Act"), being expenditure incurred by the appellant on account of performance incentive payable to employees during the relevant previous year.
1.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in observing that all bonus/incentives, including performance linked incentives, are covered under section 36(1)(ii) and are, therefore, allowable as deduction subject to the provisions of section 43B (c) of the Act.
1.2 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that the performance linked incentives payable by the appellant to its employees is not covered under section 3 ITA No.9/Del./2013 36(1)(ii) of the Act as the same are not dependent upon the profits of the appellant which is a sine qua non for applicability of the said section.
The appellant craves leave to add, alter, amend or vary the above grounds of appeal at or before the time of hearing."
4. While pleading on behalf of the assessee ld. AR submitted that this expenditure of Rs.12,85,255/- was incurred by the assessee on acc0unt of performance incentive payable to the employees during the relevant previous year. The Assessing Officer disallowed this amount by holding that the amount is covered u/s 36(1)(ii) of the Income-tax Act, 1961 and subject to the provisions of section 43B (c) of the Act. Ld. AR further submitted that this issue is squarely covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court in the case of Shriram Pistons & Rings Ltd. vs. CIT reported in 307 ITR 363 (Del.). Hon'ble Delhi Hon'ble High Court while relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. reported in 171 ITR 256 (SC) and the judgment of Division Bench of Hon'ble Delhi High Court in the case of CIT vs. Autopins (India) reported in 192 ITR 161 (Del.) has granted the relief on this issue.
5. On the other hand, ld. DR relied on the orders of the authorities below.
6. We have heard both the sides on the issue. The Hon'ble jurisdictional High Court in the case of Shriram Pistons & Rings Ltd. (cited supra) has held as under :-
4 ITA No.9/Del./2013
"35. The third question that has been referred for our consideration relates to "good work reward" and whether it constitutes bonus within the meaning of the section 36(1)(ii) of the Act.
36. The Tribunal has noted that the word 'bonus' has not been defined anywhere including in the Payment of Bonus Act, 1965. However, for the purpose of industrial law, four types of bonus have been recognized and they are as follows :
(a) Production bonus.
(b) Contractual bonus.
(c) Customary bonus usually associated with festivals.
(d) Profit-sharing bonus.
The "good work reward" that is given by the assessee to some employees on the recommendation of senior officers of the assessee does not fall in any one of these above categories.
37. For the purpose of section 36(1)(ii) of the Act, it has been held by this Court in CIT v. Kelvinator India Ltd. [IT Case No. 266 of 1983, decided on July 23, 1987] that bonus is related only to the profit that a company makes and is not relatable to production incentive.
38. The Revenue had challenged the decision of this court by filing a special leave petition in the Supreme Court in [1988] 171 ITR (St.) 256. The special leave petition was dismissed by the Supreme Court on May 11, 1988, thereby, in a sense affirming the view taken by this court that production incentive paid to an employee was not bonus and therefore, is not covered under the provisions of section 36(1)(ii) of the Act.
39. In so far as the present case is concerned, there is nothing to suggest that the good work reward given by the assessee to its employees has any relation to the profits that the assessee may or may not make. It appears from the order of the Tribunal that it has relation to the good work that is done by the employee during the course of his employment and that at the end of the financial year on the recommendation of a senior officer of the assessee, the reward is given to the employee. Consequently, the "good work reward" cannot fall within the ambit of section 36(1)(ii) of the Act as contended by the Revenue.
40. In CIT vs. Autopins (India) [1991] 192 ITR 161, a Division Bench of this court had occasion to consider payment of various kinds of bonus such as production bonus, attendance bonus and incentive bonus and whether they were within the contemplation of the Payment of Bonus Act, 1965. It was held that such types of bonus as well as ex gratia payment would not fall within the provisions of section 36(1)(ii) of the Act and that they were payments allowable as revenue expenditure having been incurred for the purpose of business expediency. These payments were not of the type contemplated by the Payment of Bonus Act. It was held that it was an ex gratia payment or some sort of reward 5 ITA No.9/Del./2013 given to an employee for the good work done by him and would therefore, fall within the category of expenditure incurred for the purpose of business expediency and for improving the working of the assessee. Therefore, it would not fall within the meaning of section 36(1)(ii) of the Act but would fall within the ambit of section 37 of the Act. Accordingly, the third question is answered in the affirmative, in favour of the assessee and against the Revenue and it is held that the "good work reward" is allowable as business expenditure under section 37(1) of the Act."
As held by Hon'ble High Court, such expenditure paid for good work reward is allowable as business expenditure u/s 37 (1) of the Act, therefore, we allow the grounds taken by the assessee.
7. In the result, the appeal of the assessee stands allowed.
Order pronounced in open court on this 31ST day of October, 2014.
SD/- SD/-
(I.C. SUDHIR) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : the 31ST day of October, 2014
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT-XI, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.