Incentive bonus, subsidy treatment and guarantee commission were all held deductible or cost-neutral for tax purposes.

Incentive bonus paid under an industrial settlement, though above the statutory bonus limit, was treated as deductible business expenditure under section 37 and not disallowed by section 36(1)(ii). Subsidy received for setting up or acquiring assets was held not to reduce the actual cost of those assets for depreciation and investment allowance. Guarantee commission paid to a bank for purchasing a capital asset was also treated as allowable business expenditure. All three issues were decided in favour of the assessee and against the Revenue.

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Issues: (i) Whether incentive bonus paid in excess of bonus payable under the Payment of Bonus Act is allowable as a deduction despite section 36(1)(ii) of the Income-tax Act, 1961; (ii) whether subsidy received by the assessee reduces the actual cost of the assets for purposes of depreciation and investment allowance; (iii) whether guarantee commission paid to a bank for purchase of a capital asset is allowable as business expenditure.

Issue (i): Whether incentive bonus paid in excess of bonus payable under the Payment of Bonus Act is allowable as a deduction despite section 36(1)(ii) of the Income-tax Act, 1961.

Analysis: The payment of incentive bonus arose under an industrial settlement with employees. The Court followed its earlier view that such payment is not covered by section 36(1)(ii), but is deductible under section 37 of the Act as business expenditure.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether subsidy received by the assessee reduces the actual cost of the assets for purposes of depreciation and investment allowance.

Analysis: The Court applied the principle that subsidy received for setting up or acquiring assets does not go to reduce the actual cost of the assets. Depreciation and investment allowance therefore are not to be computed after deducting the subsidy amount from actual cost.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (iii): Whether guarantee commission paid to a bank for purchase of a capital asset is allowable as business expenditure.

Analysis: The Court followed binding precedent holding that guarantee commission paid in connection with acquisition of a capital asset is allowable as business expenditure.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: All the referred questions were answered against the Revenue, and the assessee succeeded on all substantive issues decided.

Ratio Decidendi: A payment connected with business operations is deductible under section 37 if it is not specifically disallowed by the Act, and subsidy does not reduce the actual cost of assets unless the governing legal provision so requires.

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