TMI Blog1989 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Income-tax Officer did not allow deduction in respect of the said sum of Rs. 74,206 claimed as business expenditure on the ground that similar payment was disallowed in the immediately preceding year also. On further appeal, it was submitted on behalf of the assessee-company before the Commissioner of Income-tax (Appeals) that this additional payment by way of ex gratia was made to the employees with a view to avoid labour trouble which could have brought the production to a complete halt since the workers were not satisfied with the payment of statutory bonus calculated at 8.33% payable under the Payment of Bonus Act, 1965. The Commissioner of Income-tax (Appeals), however, held that the payment of Rs. 74,206 was nothing but in the nature of bonus, although it was termed as ex gratia payment. Referring to the provisions of section 36(1)(ii), the Commissioner of Income-tax (Appeals) held that the additional payment of Rs. 74,206 being in excess of the amount of bonus payable under the Payment of Bonus Act, 1965, the same was not allowable as a business expenditure in computing the total income of the assessee-company for the assessment year 1976-77. On further appeal by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bonus Act, 1965, and the same was also allowable under section 37 of the Income-tax Act, 1961. Even otherwise, the Tribunal held that the assessee was entitled to deduction of the said sum having regard to the fact that such additional amount was paid not only during the year under reference, but also in the earlier years. The payment having been made wholly for business considerations and on ground of commercial expediency and since similar payments were also made in the earlier years, the same was of the nature of a customary payment and was, therefore, admissible under section 37 of the said Act, if not under section 36(1)(ii). In this view of the matter, the Tribunal allowed the assessee's appeal and directed the Income-tax Officer to allow deduction of the said additional sum of Rs.. 74,206 paid by the assessee-company by way of ex gratia to its employees during the calendar year 1975 corresponding to the assessment year 1976-77. In the course of hearing before this court, Sri A. Bhattacharjee, learned counsel appearing for the Revenue, referred to the historical background leading to the enactment of the Payment of Bonus Act, 1965, and the various amendments made thereto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 ITR 294 (Cal). Learned counsel for the Revenue finally submitted that the amendment made in 1975 in the Payment of Bonus Act, 1965, reflects the economic policy of the Government to encourage accumulation of profit for development of industry as also to encourage savings for better utilisation of funds in the interest of welfare of the society. Having regard to the aforesaid objective, learned counsel for the Revenue submitted that the additional payment of Rs. 74,206 by way of ex gratia was nothing but in the nature of bonus and the same being in excess of what was payable under the Payment of Bonus Act, 1965, no deduction should be allowed in view of the specific provisions laid down in the first proviso to section 36 ( 1 ) (ii) of the Income-tax Act, 1961, and, in the facts and circumstances of this case, the assessee-company cannot rely on the general provisions of section 37, when the case was specifically covered by section 36(1)(ii) of the said Act. On behalf of the assessee, Dr. Pal, learned counsel supported the order of the Tribunal. He also placed reliance on the decision of the Kerala High Court in CIT v. P. Ali Kunju, M. A. Nazir Cashew Industries [1987] 166 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of loss and did not depend on the earning of profits ; and (4) that the payment has been made at a uniform rate throughout. In the instant case, the Tribunal has clearly recorded a finding of fact having regard to similar payments made by the assessee-company in the immediately preceding as well as earlier years that the payment in question had the character of customary bonus. In Indian Leaf Tobacco Development Co. Ltd v. CIT [1982] 137 ITR 827, this court has, inter alia, held that if an assessee makes ex gratia payment out of commercial expediency, such payments were allowable in working out the business income of the assessee. In CIT v. Sivanandha Mills Ltd. [1985] 156 ITR 629, the Madras High Court, while rejecting a reference application made by the Revenue under section 256(2) of the Income-tax Act, 1961, observed that section 36(1)(ii) of the Act which has relevance only to bonus paid under the Bonus Act had no application to incentive bonus, attendance bonus or customary bonus which were not bonus paid under the Bonus Act. These payments were expenditure laid out wholly and exclusively for the purposes of the business and hence allowable under section 37 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal has specifically examined the additional payment of Rs. 74,206 by way of ex gratia calculated at 8.17% in the light of the three conditions laid down in the second proviso to section 36(1)(ii) of the Income-tax Act, 1961, and has held that such payment satisfied those conditions. Further, the additional payment of Rs. 74,206 in this case was made by way of ex gratia in terms of a memorandum of settlement arrived at by and between the assessee-company and its workmen. This memorandum of settlement was signed on October 10, 1975, under which it was specifically provided that in addition to the statutory bonus of 8.33% payable in accordance with the Payment of Bonus Act, 1965, the management would pay an additional amount of 8.17% of the wages payable to the permanent employees by way of ex gratia. The Tribunal has further recorded a finding of fact that this additional payment was made wholly and exclusively for business purposes to keep good relations with the workers, to buy industrial peace and save the industry from strikes and lock-outs. The assesseecompany was running an industry and there can be no smooth running of the industry unless relations between the em ..... X X X X Extracts X X X X X X X X Extracts X X X X
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