Reasonableness of bonus must be judged by statutory factors; ignoring them makes disallowance a misdirection in law.

In assessing the reasonableness of bonus under the proviso to section 10(2)(x), the Tribunal must consider the employee's pay and conditions of service, the profits of the business, and the general practice in similar businesses. A disallowance based only on the view that the claim was unrelated to salary, or on suspicious account entries, is legally flawed if the relevant statutory factors are not addressed. On the record, the employees were low paid, the profits were substantial, and no contrary industry practice or other material justified the disallowance, so the Tribunal misdirected itself in law.

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Issues: Whether the Tribunal misdirected itself in law in disallowing part of the bonus paid to the employees of the assessee.

Analysis: The reference raised a question of law, and the High Court was competent to answer it. The Tribunal had disallowed part of the bonus mainly on the ground that the claim had no relation to salary and on suspicious entries in the accounts. The proviso to section 10(2)(x) required consideration of the employee's pay and conditions of service, the profits of the business, and the general practice in similar businesses. On the record, the employees were low paid, the profits were substantial, and there was no material showing any contrary practice or other relevant factors justifying the disallowance. The Tribunal failed to take the relevant statutory factors into account.

Conclusion: The Tribunal had misdirected itself in law in disallowing part of the bonus, so the answer was against the assessee.

Ratio Decidendi: In deciding the reasonableness of bonus under the proviso to section 10(2)(x), the relevant statutory factors must be considered, and a disallowance made without properly addressing them is a misdirection in law.

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