Taxability of bonus not directly attributable to Employer

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Sameer Bhatia

Student

25 Points Posted on 16 July 2009

Q)Regarding Taxability of bonus in hands of employees and claiming of expenditure by the employer (a private limited company)?

Genus of the Problem :- A company1 -- (hereinafter called as the DEALER) is in the business of selling cars of international reputed brand in India. Now the company2 - (hereinafter called as the Manufacturer) whose cars are being sold by the dealer(i.e. selling agent) in India conducts SERVICE QUALITY AUDIT in the premises of the dealer, and founds the dealer to be very efficient (in so far as after sales services is concerned) . The manufacturer wants to remunerate the workshop staff of the dealer, and sends a cheque of Rs.195000 `TITLES AS BONUS' to be allocated among the workshop employees of the dealer.

1. WHAT WOULD BE NATURE OF SUCH PAYMENT TITLED AS "BONUS" NOT DIRECTLY ACCRUING FROM THE DEALER (EMPLOYER) BUT DISTRIBUTED BY THE DEALER TO ITS EMPLOYEES (WORKSHOP EMPLOYEES) ?

2 CAN THE DEALER CLAIM IT AS AN EXPENDITURE ?

3 WHAT WILL BE THE MODE OF TAXABILITY OF SUCH PAYMENT MADE TO WORKSHOP EMPLOYEES BY THE MANUFACTURER (COMPANY2) ? - WILL IT TAXABLE UNDER THE HEAD SALARIES ?

Replies (2)

Krutesh Patel

ACA

641 Points Posted on 16 July 2009

Hi,

I would like to share my own views.

1. The Bonus received by employees will not be taxable under head salary because an income to fall under salary there must be employer-employee relationship. Now there is no such relations between manufacture and employees.

2. The question of deduction by the dealer does not arise. The expenditure is deductible in hands of who incurre it. The dealer has not incurred such expenditure. So he can't claim deduction of it.

3. The dealer has acted merely as agent between manufacture and employees.

Guest

Posted on 16 July 2009

Hi Sameer,

1. If the incentive they got from Manufacturer are in relation there terms of employment then it shall be taxed as Salary otherwise taxed u/s 56 as gift IFOS.

2. The dealer is merely acting as agent for making payment to employee sono income/expense for dealer.

3.If such payment is made to workshoop employee of the manufacturer then it will be allowed as expense and taxed as salary in the hands of the workshop employee.