1987 (2) TMI 46 - HC - Income Tax

Summary

Issues involved:
1. Entitlement to weighted deduction under section 35B(1)(b) of the Income-tax Act, 1961.
2. Allowability of festival bonus payments under section 36(1)(ii) of the Income-tax Act.
3. Remittance of the case to the Income-tax Officer based on the findings.

Entitlement to Weighted Deduction:
The court decided in favor of the Revenue and against the assessee regarding the entitlement to weighted deduction under section 35B(1)(b) based on a previous decision.

Allowability of Festival Bonus Payments:
In the case, the assessee claimed deduction for bonus paid to employees under section 36(1)(ii) of the Income-tax Act. The Income-tax Officer disallowed a portion of the claimed amount, stating that only the amount payable under the Payment of Bonus Act was allowable. The Appellate Assistant Commissioner allowed the excess amount as customary bonus. The Tribunal found a lack of evidence to determine if the excess amount qualified as customary bonus and remitted the case to the Income-tax Officer for further examination. The court discussed the provisions of section 36(1)(ii) and emphasized that the excess bonus payment, if justifiable based on certain criteria, should be allowed as a deduction. The court rejected the Revenue's argument that excess bonus payment to employees covered by the Bonus Act is not deductible, stating that both provisos of section 36(1)(ii) must be read together to encourage management to pay bonus exceeding statutory limits if reasonable.

Remittance of the Case:
The court recast questions 2 and 3 to clarify the issues at hand. It answered the recast second question in favor of the assessee, stating that the excess bonus payment to employees covered by the Payment of Bonus Act is deductible. However, the court answered the recast third question in favor of the Revenue, indicating that the case should be remitted to the Income-tax Officer for specific consideration of the excess payment in line with the second proviso to section 36(1)(ii).

The parties were directed to bear their respective costs, and a copy of the judgment was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.