Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred to this court : "Whether, on the facts and in the circumstances of the case, the provision of Rs. 5,52,000 made in the accounts for the year ended March 31, 1976, and described as 'provision for bonus to staff and workmen' is an allowable deduction under the Income-tax Act, 1961?"
(2.) The facts in brief are that the assessee, a limited company, debited a sum of Rs. 5,52,000 in the profit & loss account for the year ended March 31, 1976, under the head 'Provision for bonus to staff and workmen'. The plea of the assessee before the Income-tax Officer was that though no bonus was payable by it under the Payment of Bonus Act, 1965, the company decided to pay some amount to its staff and workmen on the ground of commercial expediency. Since the assessee maintains accounts on the mercantile basis, the provision of Rs. 5,52,000 was made in the accounts. The claim was rejected by the Income-tax Officer as well as by the Commissioner of Income-tax (Appeals). The assessee's plea before the Tribunal also failed. The Tribunal held as follows : "Whatever be the effect of the amendment of the Payment of Bonus Act, the provisions of Section 36(1)(ii) are quite clear in this behalf. According to the first proviso, the deduction in respect of the bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965, apply cannot exceed the amount of bonus payable under that Act. Now, it is the admitted case of the assessee that it had no allocable surplus and, therefore, no bonus could be paid under the provisions of the Payment of Bonus Act. The argument of the representative of the assessee, however, was that the present provision was made under the second proviso to this clause according to which the bonus is receivable with reference to the pay of the employee, the conditions of his service, the profits of the business and the general practice in similar business or profession. We are afraid that this argument would not help him. In the portion within the brackets of this later proviso, it has been clearly mentioned that the bonus referred to in the first proviso would not at all fall within this proviso. Therefore, even though the Supreme Court may have directed the management to pay customary bonus to its employees, it cannot be allowed as a deduction under the amended provisions of Section 36(1)(ii) as applicable during the relevant accounting year. Secondly, there is no evidence to indicate that the payment was customary. Of course, the representative of the assessee has produced a chart showing that similar payments had been made in the earlier years but it was conceded by him that all these were under the Payment of Bonus Act itself ; in fact, customary payment of bonus was not the plea of the assessee before the assessing authorities where the claim was stated to be on the ground of commercial expediency. However, no evidence has been brought forward in support of the allegation that the workers had demanded any bonus and not even a resolution of the assessee-company is forthcoming from which we could have found out as to how far the payment was for commercial expediency or deductible with reference to Section 28 or Section 37(1) or the second proviso to Section 36(1)(ii) of the Income-tax Act."
(3.) Before us, the learned advocates for the parties reiterated the arguments which were urged before the Tribunal. We have considered the contentions.;