Law: Income Tax Act, 1961

Section: 36,36(1)(ii),37

Income-tax----Business expenditure---Bonus---Additional amount paid as incentive in pursuance of settlement under Industrial Disputes Act---Amount was deductible---Income Tax Act, 1961, Ss.36 & 37. During the accounting year relevant to the assessment year 1979-80, the assessee paid a sum of Rs.22,54,136 to its workers as incentive payment in pursuance of a settlement between the management and the workers arrived at under section 12(3) of the Industrial Disputes Act, 1947. The Income-tax Officer disallowed the amount on the ground that the amount was in excess of the statutory bonus payable under the Payment of Bonus Act, 1965, and the same should be regarded as a bonus payment. However, the Tribunal held that the amount was deductible. On a reference: Held, that the Tribunal found that, if the amount was not paid, the workers would have gone on strike, and so the additional amount could be regarded as paid by virtue of commercial expediency. Once it is held that the additional amount is not a bonus, then the provisions under section 36(1)(ii) of the Income Tax Act, 1961, do not apply, and the only provision that has to be satisfied for the allowance of the expenditure is section 37. The additional amount was paid on commercial principles and commercial considerations, and was allowable under section 37. CIT v. Sivanandha Mills Ltd. (1985) 156 ITR 629 (Mad.) fol. JUDGMENT N.V. BALASUBRAMANIAN, J.---At the instance of the Revenue, the Appellate Tribunal, has stated the case and referred the following question of law, for the opinion of this Court for the assessment year 1979-80: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has rightly held that the payment of Rs.22,54,136 in pursuance of the settlement between the assessee ­company and the workers under the Industrial Disputes Act, 1947, over and above the statutory bonus, is allowable under section 37 of the Income Tax Act, 1961?" The assessee is a company. During the relevant assessment year 197 -80, the assessee paid a sum of Rs.22,54,136 to its workers as incentive payment in pursuance of the settlement between the management and the workers under…

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