Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1981-82 and 1984-85, the following questions of law have been referred to this court : " 1. Whether the Tribunal was justified in holding that the ex gratia payment made by the assessee to its employees did not represent bonus paid under the Payment of Bonus Act, 1965 ? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Section 34 of the Payment of Bonus Act, 1965, would not apply to the memorandum of settlement dated 3rd November, 1980, and 24th September, 1983, under which ex gratia payment was made by the assessee-company to its employees ? Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the payment made by the assessee to its workmen as per memorandum of settlement Was ex gratia payment, not coming under the purview of the Payment of Bonus Act, 1965, and would be allowable as a deduction under Section 37 of the Income-tax Act, 1961?" Shortly stated, the facts are that the assessee is a grower and manufacturer of tea. In the assessment year 1981-82, the Income-tax Officer disallowed the amount of Rs. 51,778 observing as under : "Ex gratia : The assessee had claimed a sum of Rs. 51,778 as payment towards ex gratia in addition to payment of bonus at 8.33 per cent. Obviously, the payment of ex gratia is in the nature of bonus and should be considered together. In this year, the assessee had incurred losses and, as such, no allocable surplus was available to the assessee. In view of this, the payment of ex gratia to the extent of Rs. 51,778 was in excess of bonus allowable under the relevant Bonus Act. Therefore, I am inclined to disallow this amount in the assessment. . . . Rs. 51,778." For the assessment year 1984-85, the Income-tax Officer disallowed the amount of Rs. 35,000 which the assessee claimed as ex gratia payment, as inadmissible expenditure.
(2.) On appeal, the Commissioner of Income-tax (Appeals) deleted the impugned additions.
(3.) In the Revenue's appeal, the Tribunal held that the memoranda of settlement dated November 3, 1980, and September 24, 1983, provided for payment of ex gratia only and that what was paid according to them was not bonus and that Section 34 of the Payment of Bonus Act, 1965, was not applicable to the said memoranda. The Tribunal further held that the said ex gratia payments were allowable under Section 37.;