1991 (3) TMI 196

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....d the learned Departmental Representative and the learned counsel for the assessee and have perused the material placed before me. 2. During the year under consideration the assessee paid Rs. 40,876 as bonus to its employees. This was @ 20% of their wages. The ITO observed that the assessee had no allocable surplus and, therefore, it was liable under the Bonus Act to pay only the minimum bonus ....

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....o that extent would override section 37(1) and, therefore, deletion of the disallowance was improper. He placed reliance, inter alia, on Addl. CIT v. Moolchand Jaikishandas & Co. [1977] 108 ITR 500 (Guj.) in which while dealing with the payment of commission the Hon'ble High Court held that the same has to be restricted in terms of Section 36(1)(ii) and cannot be allowed under section 37(1). The l....

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....ll not exceed the amount of bonus payable under the Act. The second proviso applies to payment of bonus to which the first proviso does not apply and permits the deduction to be allowed if the payment of bonus is reasonable with reference to-- " (a) the pay of the employee and the conditions of his service ; (b) the profits of the business or profession for the previous year in question ; an....

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....ave thought that since there was no allocable surplus, the assessee was debarred by the Bonus Act from paying bonus above 8.33%. This interpretation, in my view, is not correct. Section 11 permits payment of bonus up to 20% and the maximum limit of 20% seems to have been placed so that the basic grades of pay of the employees are not kept low. Similarly, when the first proviso to section 36(1)(ii)....