2003 (2) TMI 27 - HC - Income Tax

Whether, initial contribution by the assessee-company of Rs. 1,28,228 to superannuation fund was a allowable deduction for the assessment year 1978-79? - Whether, the assessee was entitled to deduction of Rs. 22,81,847 which paid by the assessee company to its employees over and above the bonus payable under the Payment of Bonus Act for the assessment year 1979-80? - Whether, the limit prescribed under section 80G(4) was not confined to 55 per cent. (50 per cent.) of 10 per cent. of gross total income and the said section only prescribed the ceiling for deduction for the assessment years 1978-79 and 1979-80? - Question No. 1 In the affirmative and in favour of the assessee. - Question No. 2 In the negative and in favour of the Revenue. - Question No. 3 In the negative and in favour of the Revenue.

Summary

Issues:
1. Allowability of initial contribution to superannuation fund for assessment year 1978-79.
2. Deductibility of additional bonus paid to employees for assessment year 1979-80.
3. Interpretation of the limit prescribed under section 80G(4) for assessment years 1978-79 and 1979-80.

Issue 1:
The court addressed whether the initial contribution by the assessee-company to the superannuation fund was an allowable deduction for the assessment year 1978-79. The Revenue acknowledged that the issue was settled by a previous apex court decision in favor of the assessee. Consequently, the court answered this question in the affirmative and in favor of the assessee.

Issue 2:
Regarding the deductibility of an additional bonus paid to employees for the assessment year 1979-80, the Income-tax Officer initially disallowed the amount beyond what was admissible under the Payment of Bonus Act. However, the Commissioner of Income-tax (Appeals) and the Tribunal considered the additional payment as a necessary business expenditure incurred for business expediency. The court, based on precedent, emphasized that such ex gratia payments must meet the conditions of the second proviso to section 36(1)(ii) to be deductible. In this case, the court found insufficient evidence to support that the conditions were met, leading to a negative answer in favor of the Revenue.

Issue 3:
The interpretation of the limit prescribed under section 80G(4) for the assessment years 1978-79 and 1979-80 was also a subject of consideration. The Tribunal had applied the ceiling specified in sub-section (4) to the aggregate amount for deduction claimed, contrary to the decision of another High Court. The High Court, referring to its own precedent, clarified that the ceiling applies to the aggregate of the sums for which deduction is claimed, not just the amount allowed under sub-section (1). Consequently, the court answered this question in the negative and in favor of the Revenue.

In conclusion, the court disposed of the reference by affirming the initial contribution to the superannuation fund, disallowing the additional bonus payment deduction, and interpreting the limit under section 80G(4) in line with its previous rulings, all in favor of the Revenue.