1991 (3) TMI 196 - AT - Income Tax

Summary

Issues:
1. Deduction of bonus under section 36(1)(ii) of the Income Tax Act.
2. Allowability of bonus payment under section 37(1) of the Income Tax Act.
3. Interpretation of section 11 of the Payment of Bonus Act regarding the maximum bonus payable.

Detailed Analysis:
1. The issue in this case revolves around the deduction of bonus under section 36(1)(ii) of the Income Tax Act. The Assessing Officer disallowed a portion of the bonus paid by the assessee, citing that the assessee had no allocable surplus and was only liable to pay the minimum bonus of 8.33%. The CIT (Appeals), however, deleted the disallowance, stating that the bonus payment was in accordance with an agreement between the Cold Storage Association and the Labour Union, and thus allowable under section 37(1) of the Act.

2. The contention of the Departmental Representative was that the deduction for bonus should be limited to what is provided in section 36(1)(ii) and that the deletion of the disallowance was improper. The representative relied on a previous court decision to support this argument. On the other hand, the counsel for the assessee supported the CIT (Appeals) decision, emphasizing the validity of the agreement under which the bonus was paid.

3. Regarding the interpretation of section 11 of the Payment of Bonus Act, the Tribunal analyzed that the assessee had paid bonus at a rate of 20%, which was above the minimum prescribed rate of 8.33%. The Tribunal noted that section 11 allows for the payment of bonus up to 20%, irrespective of the presence of allocable surplus. It was clarified that the term "payable" in the context of the Act should be understood as "permitted to pay," indicating that the 20% bonus paid by the assessee was within the limits set by the Act.

4. The Tribunal further explained that even if the bonus exceeding 8.33% was not considered payable under the Payment of Bonus Act, the excess amount disallowed by the Assessing Officer could be evaluated under the second proviso to section 36(1)(ii). In this scenario, the excess amount would be subject to the conditions outlined in the second proviso, which were deemed to have been met as the bonus payment was based on an agreement reached through conciliation machinery. Consequently, the Tribunal upheld the decision of the CIT (Appeals) and dismissed the appeal of the Revenue.