Bonus payments to directors are permissible under the Income Tax Act if justified by services rendered, and past rulings should guide current assessments to maintain consistency.

JUDGMENT

Manmohan, J. (Oral):

1. Present appeal has been filed challenging the order dated 25th February, 2020 passed in ITA No. 9626/Del/2019 for the Assessment Year 2015-16.

2. Learned counsel for the Appellant states 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 (hereinafter referred to as the `Act'). He states that no business correlation in terms of business output or growth of business relating to the payment was shown by the Respondent/assessee.

3. He emphasizes 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. He submits that The Payment of Bonus Act, 1965 prohibits grant of bonus.

4. Learned counsel for the appellant further states that in view of provisions of Section 36(1)(ii) of the Act, the sum paid to an employee as bonus is allowable only when such bonus or commission has been paid for the services rendered. He states that the ITAT has erred in not appreciating that CIT(A) in its order had distinguished the findings of DRP for the Assessment Year 2013-14 and observed that "the direction of the DRP has given no finding either from the angle of Bonus Act or section 40A or section 36(1)(ii) nor regarding any correlation between business output and huge payment of bonus. No finding has been given even regarding exigency of making this huge payment in the name of business expenditure. Similar is the case with the CIT(A) 's order for A.Y. 2014-15 which has not given any finding as above. It has simply relied on the direction of DRP in earlier years. Therefore, the reliance on these two orders is not sufficient. "

5. Having perused the paper book, this Court finds that the disallowances made for similar reasons for the Assessment Years 2013-14 and 2014-15 were directed to be deleted by the DRP as well as CIT(A) and the Appellant had accepted the said decisions.

6. Undoubtedly, the principles of res-judicata and estoppel are not applicable in taxation matters. However, it has been held that a departure from a finding during the past years would result in a contradictory finding. (See: Commissioner of Income Tax vs. Sridev Enterprises, (1991) 192 ITR 165). 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 allow reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years.

7. In any event, the interpretation of Section 36(1)(ii) is fairly well settled. The Bombay High Court in Loyal Motor Service Company Limited v. Commissioner of Income Tax, (1946) 14 ITR 647 (Bom.) has held as under:

"Now the facts as shown by the reference are that this company was formed by fourteen persons, thirteen of whom were originally owner- drivers of motor vehicles, the fourteenth member contributing in money. The thirteenth not only contributed their motor vehicles but also their services and accordingly become employees of this company. Besides the thirteen there are twenty-eight other employees making a total of forty-one. In the year in question the company granted a bonus at the rate of two months' salary to its forty-one employees and the total sum required to pay this bonus was Rs. 6,084/-of which Rs. 1,954/-went to the twenty-eight