2002 (8) TMI 25 - HC - Income Tax

Remuneration to Employees - If the payment has been made to run the business which is necessary to run the business the payment is for the purpose of the business. It is also pertinent to note that the assessee-corporation is a public undertaking of the State. The payment has not been made to any friend or relation of the directors. The payment has been made to the workers with the commercial expediency. Therefore, the Tribunal was right in holding that the payment has been made with the object to run the business. The payment of ex gratia bonus is for the purpose of the business and that should not be disallowed.

Summary

The High Court of Rajasthan ruled in favor of the assessee-company regarding the deduction of ex-gratia payment to employees. The Tribunal held that the payment of Rs. 19,77,436 was for the purpose of the business based on the directors' report and union letter. The Court agreed with the Tribunal's decision, stating that the payment was necessary to run the business and should be allowed as a business expense under section 37 of the Income-tax Act, 1961.