Reasonableness of employee bonus under income tax law upheld where pay was low, profits were high, and industry practice supported payment.

Reasonableness of bonus under the proviso to section 10(2)(x) of the Indian Income-tax Act had to be assessed by reference to employees' pay and service conditions, the business profits for the year, and the general practice in comparable businesses. On the stated facts, the employees received comparatively low salaries, the business earned substantial profits, and there was no material showing the bonus to be out of line with similar concerns. The bonus was therefore not unreasonable, and the disallowance of part of it was held unjustified in favour of the assessee.

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Issues: Whether the Tribunal was right in disallowing part of the bonus paid to the employees on the ground that it was not reasonable under the proviso to section 10(2)(x) of the Indian Income-tax Act.

Analysis: The reasonableness of bonus had to be judged with reference to the employee's pay and conditions of service, the profits of the business for the year, and the general practice in similar businesses. The employees were paid comparatively low salaries, the business had earned substantial profits, and there was no evidence that the bonus paid was out of line with similar businesses. On those facts, the bonus could not be characterised as unreasonable.

Conclusion: The disallowance of part of the bonus was not justified, and the question was answered in favour of the assessee.

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