2011 (7) TMI 524 - HC - Income Tax

Labour welfare expenses disallowed - as per AO it was a mere provision, and that such a provision had been disallowed during the previous assessment year - Held that - The provisions made was not tax payment of bonus but payment, as part of the wages and as an incentive for the performance of the workers - It is also noted that an amount of Rs.10,25,069/- was paid to the workers, in the subsequent year, in excess of the provision. Considering the fact provision for Rs.9,33,430/- had been made towards the incentive for the performance of the workers, do not find any reason to differ from the findings of the Appellate Tribunal - Hence, the Tax Case Appeal stands dismissed.

Summary

Issues:
Assessment of provision for labour welfare expenses disallowed by Assessing Officer, Appeal filed before Commissioner of Income Tax (Appeals) allowed, Revenue's appeal before Income Tax Appellate Tribunal dismissed, Challenge to Tribunal's decision based on applicability of Section 43B(c) of Income Tax Act, 1961.

Analysis:
The Tax Case Appeal pertains to the assessment year 1990-1991 where the assessee, a closely held company, filed a return declaring income. The Assessing Officer disallowed a provision for labour welfare expenses, arguing it was a mere provision and had been disallowed in the previous year. The assessee contended the payment was an incentive based on worker performance, forming part of wages. The Commissioner of Income Tax (Appeals) allowed the appeal, stating the payment was not bonus but part of wages, similar to an earlier order. The Revenue appealed to the Income Tax Appellate Tribunal, which dismissed the appeal based on a previous decision favoring the assessee on a similar issue for a different assessment year.

The Tribunal found the provision was not for welfare expenses but for worker incentives, not subject to Section 43B(c) of the Income Tax Act, 1961. The Revenue contended the provision was for bonus and incentives, with actual payments exceeding the provision in the subsequent year. However, the Court noted the payments were part of wages and incentives for worker performance, aligning with the previous decision and the nature of the provision. With actual payments exceeding the provision, the Court upheld the Tribunal's decision, dismissing the Tax Case Appeal.

In conclusion, the Court found the provision was not a tax payment for bonus but part of wages and worker incentives. As the actual payments exceeded the provision and aligned with worker performance incentives, the Court upheld the Tribunal's decision, dismissing the appeal.