Law: Income Tax Act, 1961

Section: 36,36(1)(ii),34

Income-tax----Business expenditure---Bonus-Amount paid as bonus approved by Government under Payment of Bonus Act---Amount paid less than maximum permissible under Payment of Bonus Act---Entire payment was deductible--­Indian Income Tax Act, 1961, S.36. For the assessment year 1978-79, a sum of Rs.18,98,199 was found debited in the trading and profit and loss account under the head "Wages" and this represented two items, viz., (a) Rs.9,14;446 being one month's salary to each worker paid in October, 1977, on the occasion of Deepavali, and (b) a provision of Rs.9,83,759 made at the end, of the accounting year under reference at the rate of one month's wages for each worker and paid to the workers in May, 1978. The workmen disputed those payments and claimed a much higher amount by way of bonus. The dispute was ultimately settled by the Labour Officer. Under that agreement the assessee had to pay bonus at the rate of 16.67 per cent. and an additional bonus of 8.33 per cent. was paid as ex gratia and from this 25 per cent. so claimed, the amount paid in October, 1977, and May, 1978, would be deducted and the balance would be paid later. The assessee, thereafter, approached the Government for approval of this formula and the Government granted approval under section 34 of the Payment of Bonus Act, 1965, by its order, dated December 14, 1978, for the payment of 16.67 per cent, of the wages. The assessee made a claim of deduction of the amount which was worked out at Rs.18,98,199 and the Income-tax Officer disallowed the claim on the ground that the assessee was not obliged to pay anything more than the minimum bonus of 833 per cent. as the allocable surplus for the year under consideration was only Rs.99,278 and, therefore, he allowed only 50 per cent. of the claim of Rs.18,98,199 and disallowed the balance. The Commissioner of Income-tax (Appeals) confirmed the disallowance. The assessee filed an appeal before the Tribunal. The Tribunal held that the claim of the assessee was sustainable under section 36 of the Income Tax Act, 1961. The assessee also claimed deduction of Rs.9,92,972. The above sum of Rs.9,92,972 represented two sums, viz; a sum of Rs.4,43,004 which…

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