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Often manufacturers come out with incentive schemes from time to time whereunder gifts in kind such as gold, vehicles or even free foreign trips are provided to the dealers/distributors for outstanding sales performances. Such gifts in kind are in the nature of benefit or perquisite arising from the exercise of business. The cash equivalent of the value of such gifts is to be charged to tax in the hands of such dealers/distributors u/s 28(iv). The clause (iv) only apply to receipts otherwise than in cash.

In the case of Boeing v. CIT (250ITR667) the assessee being a dealer of cloth received an ambassador car under a gift scheme formulated by the company in the company’s centenary year for having purchased bulk materials. The assessing officer made an addition of Rs.50k as cash equivalent of the value of such car. The Madras High Court held that the amount of Rs.50k received by the assessee from the manufacturer whose goods it sold as a dealer/retailer, was by reason of the fact that it had achieved the target, for achieving which, incentives by way of gifts have been promised by the manufacturer. The Court further held that there would have been no occasion for the assessee to receive this amount had it not been a dealer for the manufacturer, and had it not put in the additional efforts for which the incentive scheme had been drawn up by the manufacturer. The Court held that the receipt clearly was a trading receipt.

The High Court also held that the incentive so received is not very different from what a workman in a manufacturing concern would receive by way of production bonus for achieving higher production, or the amount that a preacher would receive from those who wish to support his preaching by making payments to him for practicing the profession.

In such case it is further desired of the manufacturer to consider such cash equivalent in the discharge of obligations for deduction of tax at source u/s 194H of the Income tax Act, 1961

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