TMI Blog1997 (12) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the business of manufacture and sale of yarn. For the assessment year 1980-81 for which the accounting year ended on December 31, 1979, the assessee filed a return of income admitting the income of Rs. 60,53,060 and the assessee claimed deduction towards the provision made for bonus at 32 per cent. of the wages for the year 1979 amounting to Rs. 9,81,483. The provision was made by debiting the amount to the profit and loss account. The Income-tax Officer restricted the provision to 20 per cent. of the wages being the maximum permissible under the Payment of Bonus Act, 1965, and disallowed the rest of the amount on the ground that both the payments were made simultaneously and partook of the character of the bonus. He, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved by the order of the Appellate Tribunal sought for a reference and the Appellate Tribunal stated a case and referred the question of law set out supra. Mr. P. P. S. Janarthana Raja, learned counsel for the assessee, contended that pursuant to the settlement arrived at between the parties, the assessee had to pay a sum of Rs. 2,91,766. Since there was a valid settlement arrived at by the assessee with the workers "union", the assessee was obliged to pay a sum of Rs. 2,91,766. He, therefore, submitted that the provision was made for the said liability and it is liable to be deducted in the computation of the business income of the assessee. Mr. C. V. Rajan, learned counsel for the Revenue, however, submitted that the provision made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Payment of Bonus Act, the assessee agreed to pay the said additional sum because of business considerations. The result of entering into the agreement with the union was that there was an enforceable obligation against the assessee to pay an additional sum towards the bonus and if for any reason, the assessee commits a default in making the payment agreed to under the section 18 settlement, the assessee would be facing unrest in the organisation and its production would also be seriously affected. Taking into account all these aspects, the assessee made a provision of a sum of Rs. 2,91,766 in its account. Since the amount was agreed to be paid on the basis of commercial expediency and on business considerations it would not fall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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