TMI Blog1995 (1) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... more than 60 branches in different parts of India. The assessee-company filed its return of income for assessment year 1987-88 on 17-8-1987 declaring income at Rs. 3,89,58,925. During assessment proceedings the Assessing Officer (hereinafter referred to as AO) observed that the assessee-company has debited Rs. 94,38,998 as accrued liability towards payment of bonus of bidi workers and also towards half wages for damaged bidies and the details thereof are as under :-- 1. Bonus to workers Rs. 86,30,975 2. Wages for damaged bidies Rs. 8,08,023 ------------------------ Rs. 94,38,998 ------------------------- The Assessing Officer called for the details as to how bonus is payable to the workers and wages for damaged bidies. Regarding the claim of payment of bonus, the assessee-company asserted before the Assessing Officer that the same was claimed in view of the decision of the Hon'ble Supreme Court in the case of P.M. Patel Sons v. Union of India decided on 25-9-1985 (copy of judgment furnished) regarding applicability of Employees' Provident Fund Act to Bidi Industries. As the Hon'ble Supreme Court concluded that the home-workers are employees of manufacturers of bidies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y concluded on merits and while allowing that claim of assessee observed as under : " I have given a careful consideration to the issue at hand. I have 'gone through the operative portion relating to the issue at hand of the impugned order, have perused the written submission made on behalf of the appellant and have also paid due consideration to the submissions made by the learned counsel for the appellant during the course of this appeal proceedings. Having done so I am inclined to agree with the appellant's counsel that the action of the IAC (Asst.) is patently not justifiable, in regard to the two claims made by the assessee before the IAC (Asst.) as discussed above, on the facts and in the circumstances of the case. The liabilities in question were obviously statutory liabilities and were quantifiable. It is immaterial in the circumstances to take into consideration as to whether the appellant was contesting such liabilities or had not made any provision for such liabilities in the accounts to decide the issue. It is not as if the mischief of section 43B as it stood at the relevant point of time was attracted in the instant case. The decision of the Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractors who were employers of those workers and thus there is no question of payment of any bonus by assessee to its workers. 9. The learned Sr. D.R. Shri B.R. Meena, further pleaded that facts of the case indicate that making provisions for payment of bonus is to be treated unilateral act on the part of assessee as there is no claim from the side of workers nor any agreement in between the assessee and the workmen nor any statutory liability. Reliance was placed on the decision of Macneill Magor Ltd v. CIT [1983] 141 ITR 521 in which their Lordships of Calcutta High Court have laid down that in case there was no understanding or agreement and only a unilateral decision by the assessee itself without anything more, there was no accrued liability of the assessee and the amount would not be deductible. The Sr. D.R. pointed out that mere provision of bonus will not suffice for basis of deduction but legal liabilities to pay bonus must also be there. On the basis of above, the contention of the learned Sr. D.R. was that Assessing Officer was justified in rejecting the claim of assessee for deduction of Rs. 86,30,975 on account of accrued liability for bonus to workers. 10. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bonus to its workers. 11. After going through the material placed before us by the concerned parties and what has come before us through the rival submissions of the learned representatives of the parties, it is undisputed fact that the assessee was following mercantile system of accounting in assessment year 1987-88, the year under consideration and the business of the assessee is that of manufacturing and selling of bidies. The assessee has come with assertions that it was getting bidies manufactured through more than 25,000 bidi workers employed through contractors. In the year under consideration, the assessee claimed for deduction of Rs. 86,30,975 for bonus to workers on account of accrued liability, which, in the opinion of assessee, accrued after the decision of Hon'ble Supreme Court in the case of P.M. Patel Sons. The only point at present for scrutiny before us is to find out whether any accrued liability for payment of bonus to workers can be inferred out of this decision of Hon'ble Supreme Court or not and for that we have to go through in brief as to what were the facts of that case and how the Hon'ble Supreme Court decided the same. 12. It may be seen that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed bidies to the staff at the factory while quantity of leaves and tobacco supplied was fixed by the manufacturers and registers of the raw materials and of payment of wages are maintained at the factory. Record was maintained about manufactured bidies received from the home workers and the quantity rejected for which log book or a wage-card is issued to the home workers. In that context their Lordships also had gone through the definition of " employees " given in clause (f) of section 2 of Beedi and Cigar Workers (Conditions of Employment) Act, 1966 and the Rules framed by the State Governments under that Act and examined the case law whether provisions of Employees' Provident Fund Act will be applicable to home workers. 15. Their Lordships of the Hon'ble Supreme Court discussed different cases decided by Hon'ble Supreme Court to find out the relationship of " employee " and " employer " between bidi workers and bidi manufacturers so that applicability of Employees' Provident Fund Act may be scrutinised in context to different categories of bidi workers. The first case referred to by the Hon'ble Supreme Court is that of Chintaman Rao v. State of Madhya Pradesh [1958] SCR 1340 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the purpose of applicability of " Employees' Provident Funds Act " and Hon'ble Supreme Court itself has laid down that workmen in category-III are not to be treated as home workers for the manufacturers as they are working under independent contractors with whom manufacturers were entering into different contracts for providing finished bidies and in those cases it was contractor who was exercising the right of rejection of sub-standard bidies. The conclusion was that only those home workers who were of category-II were to be covered under the provisions of Employees' Provident Funds Act and not all the home workers. 18. From the very beginning the contention of the assessee for allowing the deduction of Rs. 86,30,975 on account of provision for making payment of bonus was on the judicial pronouncement of Hon'ble Supreme Court in the case of P.M. Patel Sons then assessee was under obligation to justify the claim based on the said judgment and for that assessee was required to come with specific facts before the authorities below giving out the number of bidi workers employed by it for category-I and then number of home workers of category-II and category-III and then to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractors that is why the contractors were maintaining individual a/c of those workers. In case those workers were in category-II of home workers, then registers of raw material, registers of payment of wages must have been maintained at the factory by manufacturers including the record showing the bidies received from the home workers and the quantity rejected with a log book or wage-card issued to each worker as observed by Hon'ble Supreme Court in the case of P.M. Patel Sons. As these documents are being maintained by contractors, the inference shall be that these 25,000 workers are employees of contractors who have been categorised in category-III by Hon'ble Supreme Court. 21. This inference is further strengthened from the important circumstances that assessee has paid " small amount " as bonus to its workers as stated in para 4 of the letter dated 29-12-1994 furnished by assessee and details of payment of that " small amount " have not been furnished in spite of specific query. The mode of using the words " small amount " by the assessee indicates that this amount will be negligible and not substantive. 22. It is again relevant, that in case the assessee was employer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the relevant assessment year by assessee was covered by any legalliability of the assessee under the Payment of Bonus Act or an award or settlement but simply allowed the deduction as assessee maintained its accounts according to mercantile system and the case was remanded to the Tribunal for fresh enquiry. The reasoning of this case go against the very plea of the learned counsel for assessee, as he argued that the Tribunal is not to examine whether assessee was liable to pay bonus or not but to see whether assessee was having any basis for making provision for bonus or not. Here assessee has not come with the plea that it was having any legal liability under the Payment of Bonus Act, 1965 or an award has been passed by any competent authority or bidi workers and assessee have arrived at any settlement to pay the bonus. The assessee's case is based on the judgment of Hon'ble Supreme Court in the case of P.M. Patel Sons. We have already observed that assessee has failed to bring the necessary details either before the authorities below or before the Tribunal to justify its claim of Rs. 86,30,975 for provision of bonus. Mere fact that assessee was maintaining its accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e way the facts of the case in Investigation Security Services (India) (P.) Ltd. are not applicable as unless and until assessee justifies the claim for making the provision of bonus payment, such claim cannot be allowed. 28. On the basis of what has been discussed above, the accumulated result of our observation is that assessee has failed to substantiate its claim for making provision for payment of bonus of the amount of Rs. 86,30,975, as assessee failed to give the necessary basis as to how that amount is worked out and by not filing the details of workers and there was no basis with the authorities below or with the Tribunal to verify the applicability of the decision of Hon'ble Supreme Court relied by the assessee. We are also of the considered opinion that assessee had wrongly made the decision of Hon'ble Supreme Court as basis for making provision for bonus payment as that was not squarely applicable to all types of workers. The assessee had no basis to claim the huge amount as provision for payment of bonus while in fact he made payment of " small amount ". Assessee must have paid bonus to those workers who came in categories of employees or upon whom the assessee was ..... 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