Mehta Equities Ltd. v. DCIT [ITA No. 5850/Mum/2019, dt. 14-10-2020] : 2020 TaxPub(DT) 4364 (Mum-Trib)

Payment of Bonus to Director cum shareholders whether disallowable under section 36(1)(ii) as they were in lieu of dividend

Facts:

Assessee paid bonus/incentive to two of its Directors who were also substantial shareholders. It was the case of the revenue that the assessee diverted money by paying this bonus/incentive instead of paying these as dividends. Assessee's plea was the directors were also taxed at the maximum marginal rate thus there was no revenue loss besides the fact that the revenue cannot rechristen a transaction into a new one such as reading it as dividend. On higher appeal by assessee --

Held in favour of the assessee that when there was no revenue loss; the department cannot invoke the second part of section 36(1)(ii) by disallowing that the bonus was only in lieu of dividend. Re-reading a transaction is not permitted generally or only possible if there was a case of tax evasion or a tax shopping being done using the section which was missing in this case. Thus remanded for check on point as to whether it was revenue neutral as claimed by the assessee.

Applied:

M/s. Dalai & Broacha Stock Broking Pvt. Ltd. (2011) 131 ITD 36 (Mum-Trib) : 2012 TaxPub(DT) 0438 (Mum-Trib)