TMI Blog1979 (11) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the bonus had to be judged having regard to the provisions of s. 36(1)(ii) he restricted the bonus to Rs. 5,280 that is 16 per cent and disallowed the balance of Rs. 11,221. The CIT (A) when the matter went before him on appeal found that in earlier year the manager had been paid a bonus of 30 per cent. Considering that the assessee was in the habit of making similar large payments to the manager in that year and even in the earlier years the Commr. (Appeals) found that there is no case for disallowance and deleted the addition. It is against this order of the Commr. (Appeals) that the present departmental appeal is laid before us. 2. The ld. counsel for the Department has pointed out that the manager was paid substantial salary. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s. 28. (ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission; Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of Payment of Bonus Act, 1965 (21 of 1965), apply shall not exceed the amount of bonus payable under that Act: Provided further that the amount of bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to (a) the pay of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in the Payment of Bonus Act by way of a percentage of the salary. While extending the operation of the Payment of Bonus Act on the ground of voluntary payment by the employer to persons drawing a salary above the ceiling fixed by that Act, payment of bonus to them at the rate fixed for those coming under the Act can certainly not be regarded as excessive. Even a payment of a customary bonus which falls within the terms of the second proviso cannot also be regarded as excessive. Payment of bonus was regarded earlier as an ex gratia payment to employees depending on the whim of the employer. Over the years this concept has clearly undergone a change and payment of bonus has now assumed the status of a right of the employee rather than a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by an employer to an employee even if it is called `bonus' would not in view of the special concept of bonus in the welfare state developed by the Courts be a bonus. It would merely constitute remuneration paid. We have therefore to hold that where a payment is made to an employee even if it is called bonus the allowability of that has to be judged not in the context of s. 36(1)(ii) alone but on commercial expediency under s. 37 as well. To the extent that it constitutes bonus as defined above the provisions of s. 36(1)(ii) are applicable. To the extent payment constitutes remuneration for services rendered it has to be judged only under the provisions of s. 37 i.e., to find out whether it is necessary for the business of the assessee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that services were rendered by the manager warranting the payment is not in dispute. It is not in every case that employment should be preceded by a service contract or remuneration should also be pre-determined in the case of every service. As a practical measure it is not inconceivable that persons are employed on fixed salaries or settled remuneration but after taking into account the work, performed by them or the special advantages the employer received on account of their work the employer comes to remunerate them with extra amounts. The payment need not rest on a predetermined contract in order to be either a genuine payment or a proper remuneration for the work rendered. The addition has been properly deleted. The appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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