Any company giving bonuses to employees or shareholders should be able to get tax benefits as per the law unless there is a clear finding of tax avoidance or evasion, Mumbai Bench of the Income-tax Appellate Tribunal (ITAT) said Tuesday.

According to the details of the case, a stock broking company in 2011-12 had paid Rs 5 lakh to two directors as bonus and incentives. This was over and above the remuneration they were receiving.

In a normal course the remuneration given to employees and directors is considered as an expense for the company and that can avail tax benefits as per the current regulations. However, the tax department disallowed the bonus payment aggregating to Rs 500,000 on the grounds that the taxpayer had more than Rs 1 crore of profits which could have been distributed amongst the shareholders in the form of dividend.

The tax officer also said that the two directors held shares of the taxpayer and the said amount of Rs 250,000 each, if not paid to them as bonus, was payable as dividend to the two shareholders as per a tax note by Deloitte India.

The ITAT has now settled the issue of whether bonus payment (to the shareholder directors) is allowed and this is set to give clarity in many similar litigation say tax experts.

“This ruling lays down the principle that payment of bonus or commission made to shareholder employees can be disallowed only if there is a case of tax avoidance or evasion,” Deloitte note said.

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ITO Vs DSR Impex Pvt. Ltd. (ITAT Kolkata)

The issue under consideration is whether the addition u/s 68 is justified in case of issuance of shares in exchange of shares?

ITAT states that, the ld. AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case, which, in our considered opinion, are not at all applicable herein. This is a simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead the consideration was settled through issuance of shares to the respective parties. Moreover, in the balance sheet of the assessee company in the schedule to share capital, it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. Hence ITAT hold that provision of section 68 of the Act are not applicable in the instant case and accordingly the entire addition deserves to be deleted which has rightly been done by the ld. CIT(A) which does not require any interference. Accordingly, grounds raised by the revenue are dismissed.

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The Income Tax Department has allowed condonation of delay in filing audit reports by trusts, institutions, universities and hospitals who claim tax exemption

The Income Tax Department has allowed condonation of delay in filing audit reports by trusts, institutions, universities and hospitals who claim tax exemption.

Any funds, trusts, institutions including educational and medical universities or hospitals claiming income tax exemption will have to get their accounts audited if their total income of that year exceeds the maximum amount not chargeable to tax.

Income tax law mandates that such institutes can claim tax benefits available to them only after furnishing the tax audit report in form 10BB before the prescribed time.

The Central Board of Direct Taxes (CBDT) in a circular said that income tax commissioners would admit belated applications in filing Form 10BB for years prior to assessment year (AY) 2018-19 for “condonation of delay”.

“The commissioner, while entertaining such applications regarding filing form 10 BB, shall satisfy themselves that the applicant was prevented by reasonable cause from filing such application within the stipulated time. Further all such applications shall be disposed of by March 31, 2021,” it said.

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Income tax surveys to collect information for scrutiny assessment will be undertaken by the tax deducted at source (TDS) directorate only after approval from principal chief commissioner or chief commissioner level officer, the Central Board of Direct Taxes (CBDT) has said.

The CBDT has issued directions to the officers that where any survey action is required by officers of “Central Charge” (involving search/ seizure), international charge, NeAC (National e-Assessment Centre)/ NFAC (National Faceless Assessment Centre), the same shall have to be first approved by a collegium comprising high-ranked officers.

Pursuant to ‘The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020’, the apex direct tax body CBDT has issued an internal order on exercising the power of survey by tax officers under Section 133A of the I-T Act.

In an I-T survey, tax officers visit business premises of the taxpayer to gather information by way of examination of books of accounts, data stored electronically and also access e-mail communication.

“Any verification or survey u/s 1A of the Act by the TDS charge shall be conducted by its own officers.

“Where the TDS charge is headed by the Pr. CCIT (Principal Chief Commissioner of Income Tax) of the region or by the CCIT (TDS), the verification or survey action shall be approved by the Pr.CCIT of the region or the CCIT (TDS), as the case may be and shall be conducted by the officers of the TDS charge,” the CBDT said.

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