Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Bonus---Bonus in excess of amount allowable under S.36(1)(ii)---Finding by Tribunal that amount paid was customary and that it- was reasonable---Amount was deductible---Indian Income Tax Act, 1961, S.37. Held, that as per the decision of the Supreme Court in Mumbai Kamgar Sabha v. Abdulbhai AIR 1976 SC 1455 if the bonus is paid customarily and the payment of bonus is reasonable, it should not be hit by the provisions of section 36(1)(ii) of the Income Tax Act, 1961. Inasmuch as the Tribunal came to the conclusion on appraisal of the facts that the bonus paid was reasonable and customary, such payment was deductible. Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai (1976) 49 FJR 15; AIR 1976 SC 1455 fol. CIT v. Alikunju (P.), M. A. Nazir, Cashew Industries (1987) 166 ITR 611; (1987) 70 FJR 412 (Ker.); CIT v. Mohamed Ismail (D.) (1997) 227 ITR 211 (Mad.) and Grahams Trading Co. (India) Ltd. v. Their Workmen (1959-60) 17 FJR 130 (SC) ref. JUDGMENT K. A. THANIKKACHALAM, J.---In compliance with the directions of this Court in Tax Case Petition No. 519 of 1980, dated March 9, 1981, the Tribunal referred the following question for the opinion of this Court under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"): "Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 36(1)(ii) of the Income Tax Act, 1961, the Appellate Tribunal was right in deleting the disallowance of Rs.1,93,419 being bonus paid to the employees in excess of 20 percent. of the salary made in the assessment for the year 1976-77?" The assessee is a non-banking financial institution and it carries on business in money-lending on pledges. During the previous year relevant to the assessment year 1976-77, it has paid a sum of Rs.3,79,204 as bonus to its employees and claimed the same as deduction. The assessee contended that it was uniformly paying bonus to its employees at the rate of five months salary from 1969 onwards and that they were paying three months and four months" salary as bonus in the earlier years, and, therefore, the payment being customary bonus was outside the purview of…

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