SHAW WALLACE GELATINES LTD Vs. INCOME TAX OFFICER
LAWS(IT)-1982-7-32
INCOME TAX APPELLATE TRIBUNAL
Decided on July 31,1982

Appellant
VERSUS
Respondents

JUDGEMENT

Y. Upadhyay, Vice President - (1.) THE assessee is a limited company which manufactures pharmaceutical and industrial gelatine. THE assessee during the year under appeal paid bonus to its employees at 8.33 per cent. In addition, it paid Rs. 74,206 at 8.17 per cent. THE additional payment of Rs. 74,206 was not allowed by the ITO on the ground that similar amount was disallowed in the previous year and, moreover, the same was not allowable according to the Income-tax Act, 1961 ('the Act'). He, therefore, disallowed Rs. 74,206.
(2.) The assessee came in appeal before the Commissioner (Appeals) and the Commissioner (Appeals) found that the disallowance made by the ITO for the assessment year 1975-76 was deleted by the Commissioner (Appeals) on the ground that provisions of Section 36(1)(ii) of the Act came into force after 25-9-1975 and, therefore, that provision was not applicable for the assessment year 1975-76. However, he found that according to the provisions of Section 36(1)(ii), deduction on the account of bonus shall not exceed the amount of bonus payable under the Payment of Bonus Act, 1965 ('the Bonus Act'). During the year under appeal, the assessee had paid bonus at 8.33 per cent but the workers were not satisfied with the payment and with a view to avert labour trouble which would have brought the production to a complete halt, the company made a further payment of Rs. 74,206. On the above argument of the assessee, the Commissioner (Appeals) has stated that whatever may be the reason for making the additional payment of Rs. 74,206, the fact remains that the payment is in the nature of bonus, although it may be called by the name of 'ex gratia payment'. The payment is not allowable according to the provisions of Section 36(1)(ii) and he, therefore, confirmed the disallowance. Dr. D. Pal, the counsel for the assessee, referred to the provisions of Section 36(1)(ii) and stated that the payment made by the assessee is not hit by the above provision. He filed a copy of the settlement by which the additional payment of Rs. 74,206 was made to the workers. He stated that the limit provided under the first proviso to Section 36(1)(ii) is only in respect of the bonus payable under the Bonus Act and it did not include customary and other kinds of payments. Dr. Pal in this connection referred to the decision of the Supreme Court in AIR 1979 SC 876. He relied upon paragraphs 9, 10 and 11 of the judgment and stated that the puja, customary and other kinds of bonus paid by the assessee is allowable even under Section 36(1)(ii). The alternative argument of Dr. Pal was that the workers were not satisfied with the payment of 8.33 per cent under the Bonus Act and consequently, the matter was taken up with the labour to buy industrial peace and the additional payment at 8.17 per cent was made. The payment made by the assessee was incidental to its business and, therefore, the payment was allowable under Section 37 of the Act. Dr. Pal in this connection relied on the decision in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) and CIT v. Kalyanji Mavji & Co. [1980] 122 ITR 49 (SC). It was stated by Dr. Pal that the payment was made in the business interest of the company and the commercial expediency necessitated the payment of the above amount.
(3.) SHRI B.G. Gupta, the senior departmental representative, on the other hand, very strongly supported the order of the Commissioner (Appeals) and stated that a limit has been imposed on the payment of bonus by Section 36(1)(ii).The assessee cannot pay bonus exceeding the amount payable under the Bonus Act. The assessee has given the name to the payment as 'ex gratia payment' but, in effect, it was only a bonus which was not allowable under Section 36(1)(ii). Hence, the disallowance was proper. The senior departmental representative, SHRI Gupta, specially urged that there is a special provision which will override the general provision and, therefore, once the amount was disallowable under Section 36(1)(ii), the same cannot be allowed under Section 37. SHRI Gupta further distinguished the cases relied upon by the assessee's counsel and further stated that the judgment of the Supreme Court in AIR 1979 SC 876 was in a different context. He, therefore, urged that the order of the Commissioner (Appeals) should be maintained.;


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