Undoubtedly, The Principles Of Res-Judicata And Estoppel Are Notapplicable In Taxation Matters. However, It Has Been Held That A Departurefrom A Finding During v. Sridev Enterprises (1991) 192 Itr165).In Fact, In Commissioner Of Income Tax Vs Excel Industries Ltd(2014) 13 Scc 457, The Court Had Observed That It Was Not Ap

$~263 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 82/2022 PR. COMMISSIONER OF INCOME TAX-1..... AppellantThrough:Mr.Sanjay Kumar, senior standingcounsel.versus BMO ADVISORS PVT. LTD...... Respondent Through:None. %Date of Decision: 11[th]April, 2022 CORAM: HON'BLE MR. JUSTICE MANMOHANHON'BLE MR. JUSTICE DINESH KUMAR SHARMA J U D G M E N T MANMOHAN, J (Oral): 1.Present appeal has been filed challenging the order dated 25[th]February, 2020 passed in ITA No. 9626/Del/2019 for the Assessment Year2015-16. 2.Learned counsel for the Appellant states that no justification wasgiven by the Respondent/assessee regarding the kind of services rendered toearn such a huge amount of bonus to a person specified under Section40A(2)(b) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).He states that no business correlation in terms of business output or growthof business relating to the payment was shown by the Respondent/assessee. 3.He emphasizes that there is a distinction between a corporate entityand its directors. He states that if a huge amount is paid as a bonus to the ITA No.82/2022 Directors of a company, the corporate entity itself may not survive. Hesubmits that The Payment of Bonus Act, 1965 prohibits grant of bonus. 4.Learned counsel for the appellant further states that in view ofprovisions of Section 36(1)(ii) of the Act, the sum paid to an employee asbonus is allowable only when such bonus or commission has been paid forthe services rendered. He states that the ITAT has erred in not appreciatingthat CIT(A) in its order had distinguished the findings of DRP for theAssessment Year 2013- 14 and observed that "the direction of the DRP hasgiven no finding either from the angle of Bonus Act or section 40A orsection 36(1)(ii) nor regarding any correlation between business output andhuge payment of bonus. No finding has been given even regarding exigencyof making this huge payment in the name of business expenditure. Similar isthe case with the CIT(A) 's order for A.Y. 2014-15 which has not given anyfinding as above. It has simply relied on the direction of DRP in earlieryears. Therefore, the reliance on these two orders is not sufficient. " 5.Havingperusedthepaperbook,thisCourtfindsthatthedisallowances made for similar reasons for the Assessment Years 2013-14and 2014-15 were directed to be deleted by the DRP as well as CIT(A) andthe Appellant had accepted the said decisions. 6.Undoubtedly, the principles of res-judicata and estoppel are notapplicable in taxation matters. However, it has been held that a departurefrom a finding during the past years would result in a contradictory finding.(See: Commissioner of Income Tax vs. Sridev Enterprises (1991) 192 ITR165).In fact, in Commissioner of Income Tax vs Excel Industries Ltd(2014) 13 SCC 457, the Court had observed that it was not appropriate to ITA No.82/2022 allow reconsideration of an issue for a subsequent assessment year if thesame “fundamental aspect” permeates in different assessment years. 7.In any event, the interpretation of Section 36(1)(ii) is fairly wellsettled. The Bombay High Court in Loyal Motor Service Company Limitedv. Commissioner of Income Tax (1946) 14 ITR 647 (Bom.) has held asunder:- 6.Undoubtedly, the principles of res-judicata and estoppel are notapplicable in taxation matters. However, it has been held that a departurefrom a finding during the past years would result in a contradictory finding.(See: Commissioner of Income Tax vs. Sridev Enterprises (1991) 192 ITR165).In fact, in Commissioner of Income Tax vs Excel Industries Ltd(2014) 13 SCC 457, the Court had observed that it was not appropriate to ITA No.82/2022 allow reconsideration of an issue for a subsequent assessment year if thesame “fundamental aspect” permeates in different assessment years. 7.In any event, the interpretation of Section 36(1)(ii) is fairly wellsettled. The Bombay High Court in Loyal Motor Service Company Limitedv. Commissioner of Income Tax (1946) 14 ITR 647 (Bom.) has held asunder:- “Now the facts as shown by the reference are that this company wasformed by fourteen persons, thirteen of whom were originally owner-drivers of motor vehicles, the fourteenth member contributing inmoney. The thirteenth not only contributed their motor vehicles butalso their services and accordingly become employees of thiscompany. Besides the thirteen there are twenty-eight other employeesmaking a total of forty-one. In the year in question the companygranted a bonus at the rate of two months’ salary to its forty-oneemployees and the total sum required to pay this bonus was Rs.6,084/- of which Rs. 1,954/- went to the twenty-eight other employeesand Rs. 4,130/- to the thirteen shareholder employees. It is to be notedthat the quantum of bonus paid to each of the shareholder employeeswas by reference to their salaries and not to their stakes in thecompany. A tabulated result is set out in the application for thisreference and is printed on p. 12 of the record. It is there shown thatof the thirteen shareholder employees six employees got less bonusthan they would have got as dividends if the sum of Rs. 4,130/- hadbeen distributed by way of additional dividends. Five of them gotmore bonus than such dividends and in the case of two of them thefigure works out the same. That is an accident in the sense that thebonus payment being referential to their wages and the dividendsbeing referential to their shares have no relation to each other. Nowthe answer to the question referred to us depends on the constructionthat is to be placed upon para (x) of sub-s. (2) of s.10. It should benoted that the body of this sub-section provides an allowance and thequalifying part of it is by way of exception to that allowance. What isto be allowed is “any sum” paid to an employee as bonus orcommission for services rendered and the exception is, where “suchsum” would not have been paid to him as profits or dividends if it had not been paid as bonus or commission. In the exception the words“such sum” can, in my opinion, only refer to the last and the onlyantecedent, which is “any sum” paid as commission or bonus.Therefore, unless the commission or bonus would be paid to theassessee as profits or dividends the exception to the allowance doesnot operate. Mr. Setalvad on behalf of the Commissioner has pointedput with considerable force that strictly construed there can hardlyever be a case which comes within the ambit of the exception. SirJamshedji Kangaon behalf of the assessee company suggests two suchcases, viz., in the case of what is generally called a one-man companywhich is not unlawful under the Indian Companies Act, and is also acase in which a company, in declaring a dividend, or a partnership, indeclaring division of their profits, say that instead of distributing theirprofits by way of dividends, or shares of profits, they will distributethe amount to themselves, as salaried employees in their owncompany or partnership, as bonus. We are construing a taxationstatute and the subject is entitled to have such a statue strictlyconstrued in his favour. In my opinion,in placing a strict constructionon this subsection, the sum expected under the expression “such sum”must be the same sum as is described by the expression “Any sumpaid as bonus or commission”, and that an equivalent sum even in thetwo cases where by accident the bonus and the prospective dividendare the same, is not included in that construction. If that is theconstruction which is to be placed upon this sub-section, then theanswer to the question is, that the whole sum of Rs. 4,130/- paid asbonus to the shareholder employees is allowable as deduction underthe provisions of s. 10(2)(x). I answer the question referred to us inthe affirmative. The Commissioner must pay the costs of thisreference.” Kania, J., in his concurring judgment had elucidated and interpretedSection 10(2)(x) of the Income Tax Act, 1922 and observed as under: “In my opinion, that the construction of the clause is not correct. Theword “such” must refer to what had been previously mentioned in thesame clause in connection with the word “sum”. To find that out wemust look to the first part of the clause. That refers to “any” sum.Reading the clause in that way the plain meaning appears to be that ITA No.82/2022 Kania, J., in his concurring judgment had elucidated and interpretedSection 10(2)(x) of the Income Tax Act, 1922 and observed as under: “In my opinion, that the construction of the clause is not correct. Theword “such” must refer to what had been previously mentioned in thesame clause in connection with the word “sum”. To find that out wemust look to the first part of the clause. That refers to “any” sum.Reading the clause in that way the plain meaning appears to be that ITA No.82/2022 when a particular amount was paid by way of bonus to an employee,if the same amount would have been paid to him as a shareholder asdividend or profit, the company cannot be allowed a deduction on theground of payment of bonus. To put it in other words the clause isintended to prevent an escape from taxation by describing a paymentas bonus, when in fact ordinarily it should have reached theshareholder as profit or dividend. The argument would be equallyapplicable in the case of a partnership as in the case of a limitedcompany. This construction leads to no hardship. It does not allow awrong payment of bonus to escape taxation. In the first instance thebonus in the hands of the employee is liable to be taxed, unlessexempted by a special notification. Moreover, the proviso containsconditions under which if a wrong claim is made, the same can beinvestigated and disallowed. An illustration will perhaps make theposition clear. Five persons in a firm realizing that the profits of theyear were Rs. 50,000/- and they had an equal share in the profits ofthe business decide that instead of receiving Rs. 10,000/- each as theshare of profits each of them will be paid Rs. 10,000/- as bonus orcommission. In such a case the firm, when sought to be assessed, maycontend that Rs. 10,000/- were paid as bonus. The contention will beclearly rejected. But the safeguards do not end there. The firm willhave to prove to the satisfaction of the taxing authority that fivepartners were employees, in the first instance. Secondly, that thebonus was a reasonable amount having regard to the pay theemployee and the condition of the service. Thirdly, that the profits ofthe business for the year in question made it reasonable to pay theamount granted as allowance and lastly the general practice insimilar business or trade justified the payment of the amount asbonus. It seems to me that the plain reading of the clause means thatthe profits of a business will not be allowed to be dwindled by merelydescribing the payment as bonus, if the payment is in lieu of dividendor profit. I do not see any reason why any strained constructionshould be put on the plain meaning of the words of the clause. Itherefore, agree with the learned Chief Justice with regard to theanswer to be given to the question referred to us.” 8.This Court in AMD Metplast Pvt. Ltd. V. DCIT, (2012) 341 ITR0563 as well as in CIT v. Career Launcher India Ltd., (2013) 358 ITR0179 (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 ofbonus and the issue whether bonus is to be granted or not is essentially aquestion of fact. 9.In the present case, none of the authorities below have opined thatgrant of bonus to the Directors would either endanger the existence of thecorporate entity or was prohibited under The Payment of Bonus Act, 1965 orwas not proportionate to the services rendered by the respondent-Director. 10.In fact in the previous assessment years similar payment of bonus tothe respondent-Director has been upheld. Consequently, this Court is of theview that consistency of approach, uniformity and certainty must bemaintained. Accordingly, this Court is in agreement with the Tribunal’sdecision that as no distinguishing feature had been brought to its notice, thedirection to delete the disallowance in the previous Assessment Years mustbe followed. In view of the above, no substantial question of law arises forconsideration in the present appeal and the same is dismissed. MANMOHAN, J APRIL 11, 2022KA 10.In fact in the previous assessment years similar payment of bonus tothe respondent-Director has been upheld. Consequently, this Court is of theview that consistency of approach, uniformity and certainty must bemaintained. Accordingly, this Court is in agreement with the Tribunal’sdecision that as no distinguishing feature had been brought to its notice, thedirection to delete the disallowance in the previous Assessment Years mustbe followed. In view of the above, no substantial question of law arises forconsideration in the present appeal and the same is dismissed. MANMOHAN, J APRIL 11, 2022KA DINESH KUMAR SHARMA, J ITA No.82/2022