2015 (10) TMI 1494 - AT - Income Tax

Good work reward - whether it constitutes bonus within the meaning of the section 36(1)(ii) or an Inam payment allowable u/s 37? - Held that - There is nothing to suggest that the good work reward given by the assessee to its employees has any relation to the profits that the assessee may or may not make. It appears from the order of the Tribunal that it has relation to the good work that is done by the employee during the course of his employment and that at the end of the financial year on the recommendation of a senior officer of the assessee, the reward is given to the employee. Consequently, the good work reward cannot fall within the ambit of section 36(1)(ii) of the Act as contended by the Revenue. In CIT vs. Autopins (India) 1991 (4) TMI 96 - DELHI High Court court had occasion to consider payment of various kinds of bonus such as production bonus, attendance bonus and incentive bonus and whether they were within the contemplation of the Payment of Bonus Act, 1965. It was held that such types of bonus as well as ex gratia payment would not fall within the provisions of section 36(1)(ii) of the Act and that they were payments allowable as revenue expenditure having been incurred for the purpose of business expediency. These payments were not of the type contemplated by the Payment of Bonus Act. It was held that it was an ex gratia payment or some sort of reward given to an employee for the good work done by him and would therefore, fall within the category of expenditure incurred for the purpose of business expediency and for improving the working of the assessee. Therefore, it would not fall within the meaning of section 36(1)(ii) of the Act but would fall within the ambit of section 37 of the Act. - Decided in favour of the assessee.

Summary

Issues involved:
1. Validity of re-opening of assessment under section 147/148.
2. Treatment of a payment as bonus under section 43B or as an Inam payment under section 37 of the Income Tax Act, 1961.

Analysis:
1. Validity of re-opening of assessment under section 147/148:
The appellant challenged the re-opening of the assessment for the assessment year 2004-05, arguing that the reason for re-opening initially differed from the reason mentioned later in the order. However, this ground was not pressed during the proceedings and was dismissed accordingly.

2. Treatment of payment as bonus or Inam payment:
The main issue revolved around the treatment of a payment of Rs. 7,82,834 as either a bonus under section 43B or an Inam payment allowable under section 37 of the Income Tax Act, 1961. The appellant contended that the payment should be treated as an Inam payment and not as a bonus under section 43B. The appellant relied on a decision by the Delhi Bench of ITAT in favor of the appellant in a similar case for the assessment year 2008-09. The ITAT analyzed the nature of the payment and referred to a judgment by the jurisdictional High Court regarding the classification of bonus. The High Court held that a "good work reward" does not fall under the definition of bonus as per section 36(1)(ii) of the Act. The High Court further clarified that such expenditure for good work reward is allowable as business expenditure under section 37(1) of the Act. Based on this precedent, the ITAT allowed the ground of appeal filed by the appellant, concluding that the payment in question should be treated as a business expenditure under section 37(1) of the Act.

In conclusion, the ITAT partially allowed the appeal filed by the appellant, ruling in favor of the appellant regarding the treatment of the payment as a business expenditure under section 37(1) of the Income Tax Act, 1961.