S.K. Chander, Accountant Member - (1.) THESE cross-appeals by the revenue and the assessee are directed against the order of the Commissioner (Appeals)-XI, New Delhi dated 15-11-1985 relating to the assessment year 1981-82.
(2.) We have heard the parties and we proceed to determine the grounds taken up in appeal by the respective parties as under. The solitary ground in the appeal of the revenue relates to the deletion of the addition of Rs. 20,771 made under the first proviso to Section 36(1)(ii) of the Income-tax Act, 1961 ('the Act') on account of production incentive paid to employees. On 17-7-1978, the assessee formulated, what has been christened as 'Production Incentive Scheme'. The assessee's previous year is the financial year and the books of account are maintained on mercantile system of accounting. The assessee-company under this scheme paid Rs. 20,771 to the factory workers on the basis of the production targets achieved by them. During the assessment proceedings, the IAC (Assessment) took it to be production incentive bonus and finding that it was in excess of the limit of 20 per cent which according to him was the ceiling laid down in the first proviso to Section 36(1)(ii) disallowed the same. When the matter came up in appeal before the learned Commissioner (Appeals), he gave a finding on fact that production incentives were not in the nature of bonus payable under the provisions of the Payment of Bonus Act, 1965. He held it to be an allowable item and following the judgment of the Tribunal in the case of Kelvinator of India Ltd. [IT Appeal No. 3988 of 1981, dated 30-12-1982], held that the amount was deductible while computing the total income of the assessee. The learned Commissioner (Appeals) reiterated that production incentive is not bonus under the Payment of Bonus Act, and that it satisfies the conditions of the second proviso to Section 36(1)(w). This is objected to by the revenue. The revenue relied. upon the judgment of the Tribunal, Calcutta Bench 'D' relating to the assessment year 1979-80 in the case of Orient Movietone Corpn. Ltd. [IT Appeal No. 976 (Cal.) of 1983, dated 16-7-1984] to contend that the order of the Commissioner (Appeals) was erroneous and it may be reversed. On the other hand, the learned counsel for the assessee submitted that the amount in dispute was production incentive and not bonus. It coxild, therefore, be considered more as a part of additional wages than bonus as it was paid under the Production Incentive Scheme appearing at pages 4 to 5 of the paper book laying down the conditions linking the payment to production of the items which are manufactured by the assessee. The assessee-company is manufacturer of picture tubes. It was contended that the factum of payment is not in dispute, the purpose of payment for the business is not doubted and the disallowance is merely because it has been alleged that production incentive is bonus, which is incorrect. Therefore, there is no case for an interference in the order of the learned Commissioner (Appeals). He relied upon the judgment of the Supreme Court in the case of Titaghur Paper Mills Co. Ltd. v. Their Workmen [1959] Suppl. 2 SCR 1012 particularly p. 1019.
(3.) THE revenue had contended that if the payment is hit by the first proviso to Section 36(1)(ii) as held by the IAC (Assessment) then the payment cannot be considered under Section 37 of the Act. Rebutting this argument, the learned counsel for the assessee contended that the Hon'ble Delhi High Court in CIT v. Rama Krishna Steel Rolling Mills [1974] 95 ITR 97 while considering the question of adrnissibility of a claim under Section 10(2)(u) of the Indian Income-tax Act, 1922 held that if the claim was not admissible under that clause the amount could be considered for deduction under Section 10(2)(OT). Arguing on this analogy, he submitted that if in the alternative, the contention of the revenue is to be considered, then the claim of the assessee can be considered under Section 37 as well.;