1997 (3) TMI 17 - HC - Income Tax

Incentive payments to workers for settlement under Industrial Disputes Act qualify for tax deduction

The High Court held that the payment made by a company to its workers as an incentive payment in pursuance of a settlement under the Industrial Disputes ... Business Expenditure, Bonus, Tribunal Issues Involved: The issue involves the allowability of a payment made by a company to its workers as an incentive payment in pursuance of a settlement under the Industrial Disputes Act, 1947, over and above the statutory bonus, under section 37 of the Income-tax Act, 1961 for the assessment year 1979-80.Judgment Details:The assessee, a company, paid a sum of Rs. 22,54,136 to its workers as an incentive payment in accordance with a settlement under section 12(3) of the Industrial Disputes Act, 1947. The Income-tax Officer initially disallowed the amount, considering it as bonus payment subject to section 36(1)(ii) of the Income-tax Act. However, the Commissioner of Income-tax (Appeals) and the Appellate Tribunal disagreed, holding that the payment was made by virtue of commercial expediency and was allowable under section 37 of the Act.The Appellate Tribunal found that the additional amount paid was not a bonus but was made on commercial principles and considerations to avoid potential strikes and maintain smooth business operations. Citing precedent, the Tribunal concluded that such payments, like incentive bonuses, are allowable under section 37 of the Act as they are laid out wholly or exclusively for the purpose of the business.Therefore, the High Court held that the Appellate Tribunal correctly determined that the payment made under the settlement between the company and workers, beyond the statutory bonus, is allowable under section 37 of the Income-tax Act. The court answered the question of law in the affirmative, ruling against the Revenue, with no costs incurred.