Ajit K. Sengupta, J. - (1.) In this reference at the instance of the Revenue, the following question of law has been referred to this court for its opinion under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1976-77 : "Whether, on the facts and in the circumstances of the case, the additional payment to the assessee's employees by way of ex gratia or puja or customary bonus in excess of the bonus payable under the Bonus Act, 1965, was an admissible deduction under Section 36(1)(ii) of the Income-tax Act, 1961 ?"
(2.) The facts leading to this reference are as under : The assessee company is engaged in the business of manufacturing pharmaceutical and industrial gelatine. During the relevant previous year, the assessee-company paid bonus to its employees at 8.33%. In addition thereto, it also paid another sum of Rs. 74,206 to its employees by way of ex gratia payment calculated at 8.17%. The Income-tax Officer did not allow deduction in respect of the said sum of Rs. 74,206 claimed as business expenditure on the ground that similar payment was disallowed in the immediately preceding year also.
(3.) On further appeal, it was submitted on behalf of the assessee-company before the Commissioner of Income-tax (Appeals) that this additional payment by way of ex gratia was made to the employees with a view to avoid labour trouble which could have brought the production to a complete halt since the workers were not satisfied with the payment of statutory bonus calculated at 8.33% payable under the Payment of Bonus Act, 1965. The Commissioner of Income-tax (Appeals), however, held that the payment of Rs. 74,206 was nothing but in the nature of bonus, although it was termed as ex gratia payment. Referring to the provisions of Section 36(1)(ii), the Commissioner of Income-tax (Appeals) held that the additional payment of Rs. 74,206 being in excess of the amount of bonus payable under the Payment of Bonus Act, 1965, the same was not allowable as a business expenditure in computing the total income of the assessee-company for the assessment year 1976-77.;