1991 (2) TMI 22 - HC - Income Tax

Summary

Issues Involved:
1. Whether the payment of annual special incentive of Rs. 1,17,714 was production bonus and does not come under the purview of the Payment of Bonus Act, 1965.
2. Whether the payment of monthly incentive bonus amounting to Rs. 5,56,963 was production bonus and does not come under the purview of the Payment of Bonus Act, 1965.

Summary:

Issue 1: Annual Special Incentive Bonus
The Tribunal held that the annual special incentive bonus of Rs. 1,17,714 is a production bonus and does not fall under the Payment of Bonus Act, 1965. The agreement dated June 5, 1979, specified that this bonus was contingent upon achieving required invoiced despatches, making it performance-based rather than profit-based. The Supreme Court in Titaghur Paper Mills Co. Ltd. v. Its Workmen and Hukumchand Jute Mills Ltd. v. Second Industrial Tribunal supported the view that production bonuses are incentives linked to production and not profits. Therefore, the special incentive bonus is allowable as a deduction u/s 37 of the Income-tax Act, 1961.

Issue 2: Monthly Incentive Bonus
The Tribunal also concluded that the monthly incentive bonus of Rs. 5,56,963 is a production bonus and not governed by the Payment of Bonus Act, 1965. Agreements dated May 19, 1971, and April 8, 1974, indicated that the monthly incentive was tied to productivity indices, thus qualifying as incentive wages. The Supreme Court's observations in Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai clarified that the Payment of Bonus Act does not cover customary or contractual bonuses. Consequently, the monthly incentive bonus is also deductible u/s 37 of the Income-tax Act, 1961.

Conclusion:
Both the annual special incentive bonus and the monthly incentive bonus are not covered under the Payment of Bonus Act, 1965, and are permissible deductions u/s 37 of the Income-tax Act, 1961. The court answered both questions in the affirmative and in favor of the assessee, with no order as to costs.