1965 (11) TMI 27 - SC - Income Tax

Whether the Tribunal misdirected itself in law in disallowing a part of the bonus paid to the employees ? Held that - As the High Court held that the Tribunal inasmuch as it did not take into consideration the relevant factors in terms of the said proviso misdirected itself in law in disallowing a part of the bonus paid by the assessee to the employees it will therefore be seen that the High Court answered the reference as in the view expressed by it a question of law arose for its consideration. Therefore no question of want of jurisdiction arises in this case. The argument of the learned counsel in substance was not that the question referred to and answered by the High Court did not raise a question of law but that the circumstances mentioned by the High Court were also taken into consideration by the Tribunal. Ihis is not a fit case for interference in exercise of our extraordinary jurisdiction under article 136 of the Constitution as the amount involved in the appeal was a few thousand rupees; and no important question of law arises for our decision. Appeal dismissed

Summary

Issues:
1. Deduction of bonus paid to employees from taxable income during assessment year 1956-57.
2. Disallowance of part of the bonus by the Income-tax Appellate Tribunal.
3. Jurisdiction of the High Court in directing the Tribunal to refer a question of law.
4. Misdirection in law by the Tribunal in disallowing part of the bonus.
5. Justifiability of interference by the Supreme Court under article 136 of the Constitution.

Analysis:
1. The respondent, engaged in business, claimed a deduction of bonus paid to employees from taxable income for the assessment year 1956-57. The Income-tax Officer disallowed a portion of the bonus as it exceeded three months' salary in most cases.

2. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the disallowance, citing reasons such as lack of relation between bonus and salary, doubts on genuineness of payment, and unsatisfactory vouchers. The Tribunal's refusal to make a reference to the High Court led to a direction from the High Court to state a case on the issue.

3. The High Court, after examining the case, found that the Tribunal had misdirected itself in law by not considering relevant factors under the proviso to section 10(2)(x) of the Indian Income-tax Act. The High Court concluded that the bonus paid was reasonable given the low salary of employees and the substantial profits of the business during the relevant year.

4. The Supreme Court dismissed the appeal, stating that the High Court had jurisdiction to direct the Tribunal to refer a question of law. The Court found that the High Court's opinion was valid as the Tribunal had not adequately considered the factors specified in the Income-tax Act, leading to a misdirection in law.

5. Despite the appeal involving a small amount and lacking significant legal questions, the Supreme Court declined to interfere, emphasizing that the jurisdiction under article 136 of the Constitution should not be exercised in this case. The judgment highlighted the established scope of sections 66(1) and 66(2) of the Income-tax Act through previous authoritative decisions of the court.