Binding CBDT circular and industrial settlement liability supported deduction of extra shift benefit and bonus payment as business expenditure.

A binding CBDT circular governed the allowance of extra shift benefit, and the presence of a contrary High Court view did not displace the circular while it remained operative. Bonus paid under a conciliation settlement, including the amount above the statutory bonus, was treated as deductible business expenditure because it discharged a binding industrial liability rather than a voluntary payment. The Tribunal also accepted deduction in the year of actual payment in line with the method consistently followed in earlier assessments. The department's objections on both deductions failed, and the assessee's relief was sustained.

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Issues: (i) Whether extra shift allowance was allowable in full on the basis of the circular of the Central Board of Direct Taxes despite the Department's reliance on the Madras High Court view. (ii) Whether bonus paid under a settlement, including the amount over the statutory bonus, was deductible as business expenditure under the Income-tax Act.

Issue (i): Whether extra shift allowance was allowable in full on the basis of the circular of the Central Board of Direct Taxes despite the Department's reliance on the Madras High Court view.

Analysis: The allowance had repeatedly been accepted by the Tribunal in earlier matters because the departmental circular governed the field and was binding on the income-tax authorities. The existence of a contrary High Court view did not displace the circular so long as it remained operative and had been reiterated.

Conclusion: The extra shift allowance was rightly allowed, and the Department's objection failed.

Issue (ii): Whether bonus paid under a settlement, including the amount over the statutory bonus, was deductible as business expenditure under the Income-tax Act.

Analysis: The payment was made pursuant to a settlement reached in conciliation proceedings and represented a binding liability arising from industrial dispute resolution. The Tribunal held that such a payment was not a mere voluntary outlay and that the ceiling applicable to bonus under the Income-tax Act did not control a payment made to discharge a statutory and contractual obligation under a settlement. The Tribunal also accepted that the amount was allowable in the year of actual payment in accordance with the consistent method followed in earlier assessments.

Conclusion: The bonus payment was deductible, and the Department's objection was rejected.

Final Conclusion: The Department's appeal failed in entirety and the assessee retained the relief granted on both disputed deductions.

Ratio Decidendi: A payment made under a binding industrial settlement to discharge a statutory business liability is allowable as business expenditure under section 37 and is not confined by the statutory ceiling governing bonus paid under the bonus legislation; further, a binding CBDT circular governs the allowance of extra shift benefits even if a contrary view exists in judicial precedent.

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