Sheffield and Vermark Consultants Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 9/DEL/2013

• Counselvise Citation: 920114 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 13-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDRA
• Assessee Lawyers: VENKTESH; RANO JAIN S
• Keywords: Business expenditure
• Section: 43B; 37(1); 37

Judgement Text

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. IT O, WARD 8 (2), 103, JOR BAGH, NEW DELHI. DELHI 110 003. (PAN : AALCS1070L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN & SMT. RANO JAIN, ADVO CATES 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 ORDE R OF CIT (APPEALS)-XI, NEW DELHI DATED 19.09.2012. 2. THE ASSESSEE COMPANY WAS INCORPORATED ON 21.08.2 007 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.1,1 3,224/-. THE ASSESSING OFFICER MADE ADDITION OF RS.12,85,255/- BY INVOKING THE PROVISIONS OF SECTION 43B FOR THE REASON THAT ASSESSEE HAS NOT SU BMITTED EVIDENCE TO ITA NO.9/DEL./2013 2 SHOW THAT ACTUAL PAYMENT HAS BEEN MADE BEFORE FILIN G 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 COMMIS SION TO AN EMPLOYEE WILL BE ALLOWABLE AS DEDUCTION UNDER 36(1) (II) IRRESPECTIVE OF THE FACT WHETHER THE EMPLOYEE IS A SHAREHOLDER OR N OT, ONLY IT IS SUBJECT TO THE CONDITION THAT IT IS NOT IN LIEU OF DIVIDEND. IN THIS CASE THE APPELLANT HAS STATED THAT THE AMOU NT IN QUESTION WAS PAID TO FOUR EMPLOYEES AS INCENTIVE FOR SERVICE S 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 EMPL OYERS. THE SECTION ALSO COVERS COMMISSION OR ANY AMOUNT PAID FOR SERVI CES RENDERED BY AN EMPLOYEE WHICH ALSO INCLUDES SHAREHOLDER OR AY PERS ON ELIGIBLE TO GET DIVIDEND. FURTHER THE COMPANY HAD NOT MADE ANY PROFITS AND TH EREFORE NO DIVIDEND WAS DECLARED. THEREFORE THE AMOUNT SO QUES TION 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 PRO DUCTION INCENTIVE. THE AMOUNT OF RS.12,85,255/- IS CONFIRME D. THIS GROUND OF APPEAL IS RULED AGAINST THE APPELLANT. 3. NOW, THE ASSESSEE IS IN APPEAL BY TAKING THE FOL LOWING GROUNDS OF APPEAL :- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED 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 AC T,1961 ('THE ACT'), BEING EXPENDITURE INCURRED BY THE APPELLANT ON ACCO UNT 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 CO VERED UNDER SECTION ITA NO.9/DEL./2013 3 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 A SSESSEE ON ACC0UNT OF PERFORMANCE INCENTIVE PAYABLE TO THE EMPLOYEES DURI NG THE RELEVANT PREVIOUS YEAR. THE ASSESSING OFFICER DISALLOWED TH IS AMOUNT BY HOLDING THAT THE AMOUNT IS COVERED U/S 36(1)(II) OF THE INC OME-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 FA VOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF SHRIRAM PISTONS & RINGS LTD. VS. CIT REPORTED IN 307 ITR 36 3 (DEL.). HON'BLE DELHI HON'BLE HIGH COURT WHILE RELYING ON THE DECIS ION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR IND IA 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) REPOR TED IN 192 ITR 161 (DEL.) HAS GRANTED THE RELIEF ON THIS ISSUE. 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRIRAM PI STONS & RINGS LTD. (CITED SUPRA) HAS HELD AS UNDER :- ITA NO.9/DEL./2013 4 35. THE THIRD QUESTION THAT HAS BEEN REFERRED FOR OUR CONSIDERATION RELATES TO GOOD WORK REWARD AND WHETHER IT CONSTI TUTES BONUS WITHIN THE MEANING OF THE SECTION 36(1)(II) OF THE ACT. 36. THE TRIBUNAL HAS NOTED THAT THE WORD 'BONUS' HA S NOT BEEN DEFINED ANYWHERE INCLUDING IN THE PAYMENT OF BONUS ACT, 1965. HOWEVER, FOR THE PURPOSE OF INDUSTRIAL LAW, FOUR TY PES OF BONUS HAVE BEEN RECOGNIZED AND THEY ARE AS FOLLOWS : (A) PRODUCTION BONUS. (B) CONTRACTUAL BONUS. (C) CUSTOMARY BONUS USUALLY ASSOCIATED WITH FESTIV ALS. (D) PROFIT-SHARING BONUS. THE GOOD WORK REWARD THAT IS GIVEN BY THE ASSESSE E TO SOME EMPLOYEES ON THE RECOMMENDATION OF SENIOR OFFICERS OF THE ASS ESSEE 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 C ASE NO. 266 OF 1983, DECIDED ON JULY 23, 1987] THAT BONUS IS RELATED ONL Y TO THE PROFIT THAT A COMPANY MAKES AND IS NOT RELATABLE TO PRODUCTION IN CENTIVE. 38. THE REVENUE HAD CHALLENGED THE DECISION OF THIS COURT BY FILING A SPECIAL LEAVE PETITION IN THE SUPREME COURT IN [1 988] 171 ITR (ST.) 256. THE SPECIAL LEAVE PETITION WAS DISMISSED BY THE SUP REME COURT ON MAY 11, 1988, THEREBY, IN A SENSE AFFIRMING THE VIEW TA KEN BY THIS COURT THAT PRODUCTION INCENTIVE PAID TO AN EMPLOYEE WAS NOT BO NUS AND THEREFORE, IS NOT COVERED UNDER THE PROVISIONS OF SECTION 36(1)(I I) OF THE ACT. 39. IN SO FAR AS THE PRESENT CASE IS CONCERNED, THE RE IS NOTHING TO SUGGEST THAT THE GOOD WORK REWARD GIVEN BY THE ASSE SSEE TO ITS EMPLOYEES HAS ANY RELATION TO THE PROFITS THAT THE ASSESSEE M AY 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 RE COMMENDATION OF A SENIOR OFFICER OF THE ASSESSEE, THE REWARD IS GIVEN TO THE EMPLOYEE. CONSEQUENTLY, THE GOOD WORK REWARD CANNOT FALL WI THIN THE AMBIT OF SECTION 36(1)(II) OF THE ACT AS CONTENDED BY THE RE VENUE. 40. IN CIT VS. AUTOPINS (INDIA) [1991] 192 ITR 161, A DIVISION BENCH OF THIS COURT HAD OCCASION TO CONSIDER PAYMEN T OF VARIOUS KINDS OF BONUS SUCH AS PRODUCTION BONUS, ATTENDANCE BONUS AN D INCENTIVE BONUS AND WHETHER THEY WERE WITHIN THE CONTEMPLATION OF T HE 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 SEC TION 36(1)(II) OF THE ACT AND THAT THEY WERE PAYMENTS ALLOWABLE AS REVENU E EXPENDITURE HAVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS EX PEDIENCY. THESE PAYMENTS WERE NOT OF THE TYPE CONTEMPLATED BY THE P AYMENT OF BONUS ACT. IT WAS HELD THAT IT WAS AN EX GRATIA PAYMENT O R SOME SORT OF REWARD ITA NO.9/DEL./2013 5 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 WORKIN G 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 O F THE ACT. ACCORDINGLY, THE THIRD QUESTION IS ANSWERED IN THE AFFIRMATIVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND IT IS H ELD 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 PA ID FOR GOOD WORK REWARD IS ALLOWABLE AS BUSINESS EXPENDITURE U/S 37 (1) OF THE ACT, THEREFORE, WE ALLOW THE GROUNDS TAKEN BY THE ASSESS EE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 31 ST 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.