Ex gratia payment deductibility under income tax law was referred for decision, while profit and production bonus stood allowed.

Profit bonus and production bonus were treated as allowable on the facts, and no further reference was directed on those items. The surviving issue was whether ex gratia payment to employees was deductible under the second proviso to section 36(1)(ii) of the Income-tax Act, 1961, or alternatively under section 37. The Court held that this question required consideration and directed the Tribunal to state the case and refer the question of law on the ex gratia payment for decision.

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Issues: Whether ex gratia payment made to employees was deductible under the second proviso to section 36(1)(ii) of the Income-tax Act, 1961 or, alternatively, under section 37 of the Income-tax Act, 1961.

Analysis: The amounts paid as profit bonus and production bonus were treated as allowable on the facts, and no reference was directed on those questions. The surviving controversy concerned the deductibility of ex gratia payment. The Court found that the question required consideration and therefore directed the Tribunal to state the case and refer the question of law on the ex gratia payment for decision.

Conclusion: The question relating to deduction of ex gratia payment was directed to be referred for decision, while the objections concerning profit bonus and production bonus were not entertained further.

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