9911796707
TMI Blog1984 (11) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees was an allowable expenditure on commercial expediency." The facts giving rise to the above controversy are in a narrow compass and may be noted. 2. The assessee is a company, whose accounting period for the assessment year 1979-80 ended on 31-12-1978. During the aforesaid previous year, the assessee-company paid bonus amounting to Rs. 5,18,505. The aforesaid bonus was paid in terms of an agreement of settlement arrived at between the assessee-company on the one hand and its workmen on the other, represented by various unions with the help of Conciliation Officer, Shri R.K. Saha, representing the Directorate of Labour of the Government of West Bengal. The recital of the case in the said memorandum of settlement reads, inter alia, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. On the basis of the aforesaid settlement, the assessee claimed deduction from its total income of the aforesaid amount of Rs. 5,18,505. The ITO, however, pointed out that the allocable surplus available for the year in question for distribution of bonus as per the Payment of Bonus Act, 1965, was Rs. 4,42,917 and that the minimum bonus payable by the company at the rate of 8.33 per cent came to a figure that is less than Rs. 4,42,917. Thus, according to him, the excess amount of bonus paid over the surplus available worked out to Rs. 75,588 (Rs. 5,18,505 minus Rs. 4,42,917). The above surplus was, according to him, paid against the provisions of the Payment of Bonus Act and was, therefore, not allowable under section 36(1)(ii) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the allocable surplus could not be allowed as deduction under section 36(1)(ii). In support of the above proposition, the learned departmental representative relied on the decision of the Tribunal in the case of Tinplate Co. of India Ltd. v. ITO [IT Appeal No. 1155 (Cal.) of 1982, dated 30-12-1983]. 6. On behalf of the assessee, reliance is placed on the order of the learned Commissioner (Appeals) and on the decision of the Tribunal in IT Appeal Nos. 2124, 2125 and 2126 (Cal.) of 1982, dated 27-7-1984. 7. We have given careful consideration to the rival submissions. That the present payment of bonus is in terms of the Payment of Bonus Act, is not in doubt. In fact, the memorandum of settlement makes this position abundantly clear. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginally stood, provided that employers and employees could enter into an agreement with regard to the payment of bonus on the basis of a formula other than that contemplated in the Payment of Bonus Act. Sub-section (3) of section 34, which dealt with this subject-matter, reads as follows : " Nothing contained in this Act shall be construed to preclude employees employed in any establishment or class of establishments from entering into agreement with their employer for granting them an amount of bonus under a formula which is different from that under this Act :" 9. The aforesaid provisions of section 34 were modified by the Ordinance, namely, the Payment of Bonus (Amendment) Ordinance, 1975, with effect from 25-9-1975. In terms of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement whereby the employees relinquish their rights to receive the minimum bonus under sub-section (2A) of section 10 shall be null and void in so far as it purports to deprive them of such right : Provided also that such employees shall not be entitled to be paid bonus in excess of--- (a) 8.33 per cent of the salary or wage earned by them during the accounting year if the employer has no allocable surplus in the accounting year or the amount of such allocable surplus is only so much that, but for the provisions of sub-section (2A) of section 10, it would entitle the employees only to receive an amount of bonus which is less than the aforesaid percentage ; or (b) twenty per cent of the salary or wage earned by them during the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Payment of Bonus Act, provided the provisions of clause (a) of the third proviso to section 34 of the Payment of Bonus Act stand fulfilled. The ITO will, therefore, have to further find out, whether the payment of bonus in the present case, in any manner, offended the provisions of clause (a) of the third proviso. If so, the amount paid in excess of 8.33 per cent would have to be disallowed. If not, the entire amount paid by the assessee to its employees in terms of the agreement entered into with the employees and duty approved (if at all) by the Government of West Bengal will be allowed as deduction under section 36(1)(ii). It would not be possible to say, in such a situation, that the payment of bonus was not in te ..... X X X X Extracts X X X X X X X X Extracts X X X X
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