Delhi HC allows Income Tax Deduction of Payment of Bonus by Company to Director: Directs Dept to follow Rule of Consistency [Read Order]

A division bench of the Delhi High Court has allowed the deduction of payment of bonus by a Company to its Directors by directing the income tax department to follow the rule of consistency.

The department, while concluding the assessment proceedings against the Company, M/s BMO Advisors Pvt. Ltd, observed that no justification was given by the Respondent/assessee regarding the kind of services rendered to earn such a huge amount of bonus to a person specified under Section 40A(2)(b) of the Income Tax Act, 1961. The department found that no business correlation in terms of business output or growth of business relating to the payment was shown by the Respondent/assessee.

Justice Manmohan and Justice Dinesh Kumar Sharma observed that 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.

Allowing the contentions of the assessee, the bench observed that “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.”

 To Read the full text of the Order CLICK HERE

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