B.V. Venkataramaiah, Accountant Member -
(1.) IN this appeal, the assessee objects to the confirmation by the Commissioner (Appeals) of a disallowance of Rs. 20,287 out of the general charges, restriction of relief under Section 35B of the INcome-tax Act, 1961 ('the Act') to only 50 per cent of the salary of the staff engaged in the export business and confirmation of a disallowance of Rs. 1,89,540, paid as bonus, made by the ITO.
(2.) We first deal with the ground relating to the rejection of the assessee's claim under bonus. The assessee entered into an agreement with its workmen on 29-4-1974. According to this agreement, the assessee was to pay bonus, up to 20 per cent of the wages, for the financial years 1972-73 to 1975-76. According to the assessee, 20 per cent of the wages paid to the permanent, daily-rated and monthly-rated workmen came to Rs. 1,89,540, in respect of the financial year 1975-76, relevant to the assessment year 1976-77. When it filed a return on 8-10-1976, it did not claim this amount as a liability. However, a revised return on 24-1-1977 was filed, wherein the aforesaid deduction from the profits was claimed. The claim was negatived by the ITO. In fact, there is no discussion in the order of the ITO, on this point. In appeal, the Commissioner (Appeals) noticed that the assessee had not made any provision, in the books of account, for payment of bonus amounting to Rs. 1,89,540. He also stated in his order, that the 'extra amount', stated to have been claimed, was higher bonus, on the basis of an agreement which was arrived at subsequently and the liability did not exist during the relevant accounting year. The Commissioner (Appeals), however, held that by virtue of the amendment of Section 36(1)(a) of the Act, with effect from 1-4-1976, the assessee was not entitled to claim any deduction of bonus higher than the minimum payable under the Payment of Bonus Act, 1965 ('the Bonus Act'). He, accordingly, held that the assessee was not entitled to any deduction under bonus.
In appeal before us, Shri S.E. Dastur, the learned counsel for the assessee, submitted that the agreement entered into on 29-4-1974, covered the payment of bonus for the subsequent years also. The claim of the assessee was confined, only, to the bonus relating to the relevant previous year. It was an accrued liability and although no provision for payment of the same was made in the accounts, the liability was deductible under the mercantile system of accounting-Kedarnath Jute Mfg. Co. Ltd. v. CIT  82 ITR 363 (SC). The learned counsel further submitted that the restrictions placed by Section 36(1)(a) would apply only to profit-based or productivity bonus and mother types of bonus-like customary, and festival contractual bonus-it would not apply. He relied upon the Supreme Court decision in the case of Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455. He then referred to the Supreme Court judgment in the case of Hukumchand Jute Mills Ltd. v. Second Industrial Tribunal  3 Taxman 43, wherein the Supreme Court held that customary bonus was not impaired or eliminated by the amendment to the Bonus Act, with effect from 1-4-1976. He then referred to another order of the Central Government Industrial Tribunal-cum-Labour Court, New Delhi, dated 30-3-1977 in the case of S. Sundaram v. American Express International Banking Corporation. [No. 33(2)/9/76 of 1976]. In this case, the bonus payable, in accordance with the agreement entered into between the employees and the management, was held to be not affected by the amendment to the Bonus Act. The Supreme Court also rejected the special leave petition filed by the management. According to Shri Dastur, the last case, which had become final, squarely covered the assessee's case. The agreement imposed a contractual obligation and, thus, the liability on the assessee, the deduction of which was not affected by Section 36(1)(ii). The assessee had, in fact, put up a notice on 11-10-1976 informing the workers that, 4 per cent of the wages would be paid on 15-10-1976 in accordance with the conditions stipulated in the Bonus Act. On 11-7-1977, the balance was agreed to be paid. Shri. Dastur stressed that the notice dated 11-10-1976 did not extinguish the assessee's liability, which had already accrued, and the payment was also made subsequently. He further relied upon certain decisions of the Tribunal, wherein it had been held that customary bonus was not covered under Section 36(1)(ii). For these reasons, he urged that the claim of the assessee to deduct Rs. 1,89,540, from its profits, should be allowed.
(3.) THE learned departmental representative, on the other hand, submitted that the assessee never made the claim in the fashion in which it was urged before the Tribunal. It was a new case which was sought to be made out by the assessee and, hence, not admissible according to the Supreme Court decision in the case of Addl. CIT v. Gurjargravures (P.) Ltd.  111 ITR 1. He further argued that the claim was not there in the original return and the assessee had never argued before the Commissioner (Appeals) that the bonus payable by it was not production-based or productivity bonus. THE claim of the assessee, now made before the Tribunal would require investigation into fresh facts and was, thus, not admissible. On merits, he argued that, firstly, the liability arose under the contract in 1974 itself and, thus, if at all, it should have been claimed in the assessment year 1975-76. Secondly, the claim was also being made in the assessment year 1978-79. Thirdly, the bonus payable to the employees was covered by Section 36(1)(a), as was clear from Clause 14 of the agreement. This clause made it clear that the employees were to get the benefits either under the settlement or under the legislation introduced either by the State Government or by the Government of India, but not under both. He submitted that this clause made it clear that the bonus given by the assessee, to its employees, was of the same type as the bonus conferred under the legislative Acts and, thus, Section 36(1 )(ii) applied to the assessee. Alternatively, it was contended that, if it was not covered by the first proviso under Section 36(1)(iv) and covered by the second proviso, then the reasonableness of the bonus was a matter which should be gone into. On the above grounds, the learned departmental representative submitted that the order of the Commissioner (Appeals) in this behalf should be upheld.;