1982 (4) TMI 106 - AT - Income Tax

Tribunal allows deduction for contractual bonus unaffected by tax law amendment

The Tribunal allowed the assessee's appeal concerning the disallowance of claimed bonus. It held that the bonus, as per the agreement with workmen, was a ... Bonus On Commission Issues:1. Disallowance of bonus claimed by the assessee.2. Interpretation of the agreement between the employer and employees regarding bonus payment.3. Applicability of section 36(1)(ii) of the Income-tax Act, 1961 to bonus payments.4. Disallowance under general charges.5. Treatment of gifts made to customers.6. Relief under section 35B of the Income-tax Act.Analysis:1. The appeal concerned the disallowance of a bonus claimed by the assessee. The assessee had entered into an agreement with its workmen for bonus payment, but the claim was rejected by the Income Tax Officer (ITO) and the Commissioner (Appeals). The Commissioner held that the amendment to section 36(1)(ii) of the Income-tax Act limited the deduction of bonus to the minimum payable under the Payment of Bonus Act, 1965. The assessee argued that the bonus was a contractual obligation and not affected by the said section. The Tribunal admitted the arguments of the assessee for consideration based on established legal principles.2. The Tribunal analyzed the settlement between the employer and employees under the Industrial Disputes Act, 1947. It concluded that the bonus payable as per the settlement did not fall under the purview of the Payment of Bonus Act, as it was not linked to profits, production, or productivity. The Tribunal also dismissed the argument that clause 14 of the agreement brought the bonus under the Bonus Act, stating that it merely safeguarded the employer's position for future legislation.3. The Tribunal relied on Supreme Court decisions to distinguish profit or productivity-based bonus from other types of bonus. It held that contractual bonus payments, as agreed upon in settlements, were enforceable and not governed by the Payment of Bonus Act. The Tribunal rejected the revenue's argument that the liability for bonus arose in 1974, emphasizing that future liabilities do not accrue on the date of the agreement. It allowed the deduction claimed by the assessee for the bonus payment.4. Regarding the disallowance under general charges, the Tribunal limited the disallowance to 25% of the amount, considering certain items as not related to business purposes. The gifts made to customers were deemed to be in the ordinary course of business and allowed as a claim. Other items under the same ground were not pursued by the assessee.5. The Tribunal confirmed the relief under section 35B of the Income-tax Act, stating that it was in line with the earlier year's order. The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the bonus deduction issue and making specific adjustments to the disallowances under general charges and treatment of gifts.