1. Whether the payments made by the assessee to its employees under the nomenclature 'Good work reward' constitute bonus within the meaning of section 36(1)(ii) of the Income-tax Act, 1961 or were allowable as normal business expenditure under section 37?
Relevant Case Law - Shriram Pistons and Rings Ltd. v. CIT (2008) 307 ITR 363 (Del.)
Relevant Section - 37
The "good work reward" that was given by the assessee to some employees on the recommendation of senior officers of the assessee did not fall in any of the categories of bonus specified under the industrial law.
There was nothing to suggest that the good work reward given by the assessee to its employees had any relation to the profits that the assessee may or may not make. The reward had relation to the good work done by the employee during the course of his employment and at the end of the financial year on the recommendation of a senior officer of the assessee, the reward was given to the employee.
Consequently, the "good work reward" could not fall within the ambit of section 36(1)(ii) of the Income-tax Act, 1961. The "good work" reward was allowable as business expenditure under section 37(1) of the Act.
2. Whether the amount received by the assessee under a lease agreement is income from other sources or business income?
Relevant Case Law - East West Hotels Ltd. v. DCIT (2009) 309 ITR 149 (Kar.)
Relevant Section - 28
The assessee was engaged in the hotel business activities. The assessee by an agreement with IHC gave one of its hotels on lease for an initial period of 33 years with an option to renew for a further period of 33 years.
The assessee claimed that the amount received from IHC had to be treated as its business income. The claim was rejected by the Assessing Officer on the ground that the assessee was not getting any business income as the hotel had been leased out by the assessee to IHC and any amount received by the assessee from such company had to be treated as income from other sources and not business income.
The Commissioner (Appeals) as well as the Tribunal held that the income received by the assessee from such hotel building was income from other sources.
The High Court held that the clauses in the agreement were more in the nature of a lease deed and not a licence given for a particular period with no intention to resume its business of hotel in the premises.
It could not be said that the assessee had been managing the hotel through IHC. Therefore, the amount received from IHC had to be treated as income from other sources and not as business income.
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