HC allows Tax Deduction on huge Bonus Payment to Directors even if same was prohibited by Payment of Bonus Act

In this matter, Income Tax Department argued that there was no justification given by the Respondent/assessee regarding the kind of services rendered to earn such a huge amount of bonus to a person specified under Sectionv40A(2)(b) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). Further, there was no business correlation in terms of business output or growth of business relating to the payment shown by the Respondent/assessee.

Department Further emphasized that there is a distinction between a corporate entity and its directors. He states that if a huge amount is paid as a bonus to the Directors of a company, the corporate entity itself may not survive. Also The Payment of Bonus Act, 1965 prohibits the grant of bonus.

Order of Delhi High Court:

8. This Court in AMD Metplast Pvt. Ltd. V. DCIT, (2012) 341 ITR 0563 as well as in CIT v. Career Launcher India Ltd., (2013) 358 ITR 0179 (Delhi) has upheld grant of bonus by companies to its directors. Consequently, this Court is of the view that there is no bar on payment of bonus and the issue whether bonus is to be granted or not is essentially a    question of fact.

9. In the present case, none of the authorities below have opined that grant of bonus to the Directors would either endanger the existence of the corporate entity or was prohibited under The Payment of Bonus Act, 1965 or was not proportionate to the services rendered by the respondent-Director.

10. In fact in the previous assessment years similar payment of bonus to the respondent-Director has been upheld. Consequently, this Court is of the view that consistency of approach, uniformity and certainty must be maintained. Accordingly, this Court is in agreement with the Tribunal’s decision that as no distinguishing feature had been brought to its notice, the direction to delete the disallowance in the previous Assessment Years must be followed. In view of the above, no substantial question of law arises for consideration in the present appeal and the same is dismissed.