Taxability of bonus not directly attributable to Employer

Tax queries 2262 views 3 replies

Sameer Bhatia

Student

54 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 `TITLED 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 ?

Sir, an immediate reply in the matter will be highly appreciated.

With Profound Regards,

Samir Bhatia
CA Student
Jalandhar (Punjab)
email id :- Sameerbhatia @ mail.com

Replies (3)

CA Lovenish Bansal

JOB

343 Points Posted on 16 July 2009

1.In give problem, It should be treated as gift or prize for their good services.because relation of employee and employer do not exist between manufacturer and employees. 2.In above given mode, it is nither an income nor expenditure of dealer. Thanks, Lovenish Bansal

Guest

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.