Ex gratia bonus deduction upheld where employee bonus met business-purpose conditions and revisionary intervention failed.

Ex gratia bonus paid to employees, when incurred for business purposes and meeting the conditions of the second proviso to section 36(1)(ii), remained deductible under the Income-tax Act, 1961. The distinction between statutory bonus under the Payment of Bonus Act, 1965 and customary or ex gratia bonus was applied, and the two were treated as operating in different fields without conflict. On that basis, the allowance of the claim was upheld and the Commissioner's revisionary jurisdiction under section 263 could not be sustained where the assessment was in accordance with law.

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Issues: Whether the ex gratia payment of bonus paid to employees was deductible under the Income-tax Act, 1961, and whether the Commissioner could validly invoke revisionary jurisdiction under section 263 in relation to the allowance of that amount.

Analysis: The payment was treated as ex gratia bonus paid in addition to the bonus payable under the Payment of Bonus Act, 1965. The Court relied on the distinction between statutory bonus and customary bonus, holding that they operate in different fields and do not conflict. It also applied the earlier view that such ex gratia payment, being incurred for business purposes and satisfying the conditions of the second proviso to section 36(1)(ii), remains deductible. On that footing, the assessee's claim had been rightly allowed and there was no infirmity in the Tribunal's view.

Conclusion: The ex gratia bonus was deductible and the Revenue's challenge to the Tribunal's order failed.

Final Conclusion: The legal effect of the decision is that the assessee succeeded on the question referred, and the Tribunal's view allowing the deduction was upheld.

Ratio Decidendi: Ex gratia payment of bonus to employees, when made for business purposes and satisfying the statutory conditions for deduction, is allowable notwithstanding the ceiling applicable to bonus, and revision under section 263 cannot be sustained where the assessment is in accordance with law.

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