1997 (12) TMI 31 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the issue of whether an additional payment made in pursuance of a settlement under the Industrial Disputes Act qualifies for deduction under section 37 of the Income-tax Act, 1961.

Details of the Judgment:

Assessment Year 1980-81:
The assessee, a company not substantially interested by the public, engaged in yarn manufacture and sale, filed a return of income for the assessment year 1980-81. The Income-tax Officer disallowed a provision made for bonus exceeding 20% of wages under the Payment of Bonus Act, 1965, as it was considered part of the character of bonus and not deductible under section 37 of the Act. The total disallowed sum was Rs. 3,68,056, with a specific reference to Rs. 2,91,766.

Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) allowed the deduction of Rs. 2,91,766, stating that the provision for additional payment was deductible under section 37 as it was made in conformity with a settlement under section 18(1) of the Industrial Disputes Act.

Income-tax Appellate Tribunal Decision:
The Appellate Tribunal held that the liability was bonus and should be determined under section 36(1)(ii) of the Act, not under section 37. The Tribunal's decision was challenged by the assessee, leading to the reference of the question of law.

Court's Analysis and Decision:
The court considered the settlement under section 18(1) of the Industrial Disputes Act, where the assessee agreed to pay an additional sum towards bonus beyond the statutory limit. The court held that the additional payment was allowable as a business deduction under section 37, based on commercial expediency and business considerations. Referring to a previous decision, the court emphasized that such payments are allowable under section 37 if made for business purposes. Therefore, the Appellate Tribunal's decision was deemed erroneous, and the question of law was answered in favor of the assessee.

In conclusion, the court ruled that the additional payment made in accordance with the settlement under the Industrial Disputes Act qualifies for deduction under section 37 of the Income-tax Act, 1961.