TMI Blog1987 (2) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, and also in view of the limit provided under section 36(1)(ii) of the Income-tax Act, the Tribunal is right in law and fact in confirming the finding of the Appellate Assistant Commissioner that festival bonus payments are not governed by the Payment of Bonus Act? 3. Whether, on the facts and in the circumstances of the case, if the answer to the above question is in the negative, the Tribunal is right in remitting the case to the Income-tax Officer ? " In the light of our decision in ITR Nos. 7 and 8 of 1982-CIT v. Tharian Sons [1987] 166 ITR 607, question No. 1 has to be answered in the negative, that is, in favour of the Revenue and against the assessee. We do so. In the accounting year relevant to the assessment year 1976-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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 the bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to (a) the pay of the employee and the conditions of his service; (b) the profits of the business or profession for the previous year in question; and (c) the general practice in similar business or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Bonus Act, the excess amount, counsel says, cannot be claimed as deduction under section 36(1)(ii) of the Act. It must be noticed at this stage that section 36 of the Act was amended by the Payment of Bonus (Amendment) Act, 1976, with effect from September 25, 1975, as a result of which, the present first proviso was added and the original proviso was retained as the second proviso with the addition of words " not being bonus referred to in the first proviso " in brackets. As a result of this amendment, the position is that where bonus has been paid in accordance with the requirements of the Bonus Act to an employee covered by that Act, the amount so paid is without doubt an allowable deduction. On the other hand, if bonus or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if what is paid as bonus, or as commission, is in excess of, or otherwise than, what is payable under that Act, even if the payment of the excess amount, whether as bonus or commission, is justifiable when considered with reference to clauses (a) to (c) of the second proviso. In our view, the two provisos must be read together to correctly understand the permissible deduction in terms of clause (ii) of sub-section (1) of section 36. The object of that clause is to encourage the management to pay bonus not only to the extent to which it is statutorily bound to pay to the employee, but also in excess of that limit, provided the payment is justifiable as a reasonable payment. To say that the second proviso to clause (ii) of section 36(1) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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