COMMISSIONER OF INCOME-TAX VS BHAVANI MILLS LTD, 2000 PTD-MADRAS-HIGH-COURT-INDIA 3440 (1997)

Income-tax---

----Business expenditure--Bonus---Incentive bonus is not covered by Payment of Bonus Act---Incentive bonus is deductible as business expenditure---Indian Income Tax Act, 1961, Ss. 36 & 37---Indian Payment of Bonus Act, 1965.

The Payment of Bonus Act has no application to incentive bonus or attendance bonus or customary bonus and they are not bonuses under the Payment of Bonus Act. Once it is not paid under the Payment of Bonus Act, the allowability of the expenditure has to be determined with reference to the provisions of section 37 of the Income Tax Act, 1961. The amount paid as incentive bonus is allowable under section 37 of the Act.

CIT v. Sivanandha Mills. Limited (1985) 156 ITR 629 (Mad.) fol.

C.V. Rajan for the Commissioner.

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

N.V. BALASUBRAMANIAN, J.---At the instance of the Revenue, the Appellate Tribunal has stated a case and referred the following question of law under section 256(1). of the Income Tax Act, 1961 (hereinafter referred to as the "Act"), for the assessment year 1980-81:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in allowing as deduction the entire claim for payment of additional bonus to the workers, even though such payment alongwith payment of bonus exceeded the quntum prescribed under the Bonus Act?"

The assessee is a company engaged in manufacturing cotton yarn. During the previous year relevant to the assessment year 1980-81, the assessee paid a sum of Rs.1,32,263 as bonus in excess of the amount prescribed under the Payment of Bonus Act and claimed that the said sum of Rs.1,32,263 was paid as incentive bonus as per the industrial settlement arrived as between the management and employees, dated October 15, 1979. The Income-tax Officer, however, held that the amount paid was only bonus and, hence it has to be allowed only subject to the ceiling limit prescribed under the provisions of section 36(1)(ii) of the Act. The. Commissioner of Income-tax (Appeals), however, in the appeal preferred by the assessee held that the employees have an enforceable right by virtue of the settlement arrived at under the Industrial Disputes Act against the assessee for the amount agreed to be paid and the amount was paid for business consideration and hence it was allowable under section 37 of- the Act. The Appellate Tribunal, on appeal, held that the amount was paid only as inceptive bonus and not profit-sharing bonus, and hence, the Commissioner (Appeals) was right in allowing, the deduction under sec tion 37 of the Act. It is this order which is the subject-matter of this tax case reference.

Mr. C. V. Rajan, learned counsel for the Department, fairly brought to the notice of this Court a decision of this Court in CIT v. Sivanandha Mills Ltd. (1985) 156 ITR 629, wherein this Court has held that the Payment of Bonus Act has no application to incentive bonus or attendance bonus or customary Bonus and they are not bonus under the Payment of Bonus Act. Once it is not paid under the Payment of Bonus Act, the allowability of the expenditure has to be determined with reference to the provisions of section 37 of the Act. This Court, therefore, held that the amount paid as incentive bonus is allowable under section 37 of the Act. The above view rendered in Sivanandha Mills Ltd.'s case (1985) 156 ITR 629 (Mad.), was followed in T.C. No. 1185 of 1985, dated March 4 of 1997. Accordingly, we are of the view that the Tribunal has correctly come to the conclusion that the incentive bonus paid to the employees is allowable under section 37 of the Act. Accordingly, we answer the question referred to us in the affirmative and against the Revenue. No costs.

M.B.A./60/FC Reference answered.