1987 (2) TMI 114 - AT - Income Tax

Summary

Issues:
1. Deletion of addition of production incentive under section 36(1)(ii) of the Income-tax Act, 1961.
2. Interpretation of production incentives as bonus or additional wages.
3. Applicability of section 37 in case of disallowed deduction under section 36(1)(ii).

Analysis:
The judgment pertains to cross-appeals by the revenue and the assessee concerning the deletion of an addition of Rs. 20,771 under the first proviso to section 36(1)(ii) of the Income-tax Act, 1961, related to a production incentive scheme for the assessment year 1981-82. The revenue contended that the production incentive should be treated as bonus and disallowed, relying on a Tribunal judgment. However, the assessee argued that the incentive was more akin to additional wages than bonus, as it was linked to production targets and not profits, citing a Supreme Court judgment supporting their stance.

The Tribunal analyzed the nature of the production incentive scheme and found that it was related to production targets, not profits, making it more akin to additional wages for extra production effort. The Tribunal agreed with the Commissioner (Appeals) that the production incentives were not in the nature of bonus as per the Payment of Bonus Act, thus allowing the deduction under section 36(1)(ii). The Tribunal cited a Supreme Court judgment emphasizing that production bonuses are incentives for higher production and additional to wages, irrespective of the payment plan.

Regarding the applicability of section 37 in case of disallowed deduction under section 36(1)(ii), the revenue argued against invoking section 37 if the payment was disallowed under section 36(1)(ii). However, the Tribunal referred to a Delhi High Court judgment to support the view that if a claim is not admissible under one clause, it could be considered under another, suggesting that the payment could still be considered under section 37 as additional wages.

Ultimately, the Tribunal dismissed the revenue's appeal, upholding the allowance of the production incentive as additional wages. The Tribunal emphasized that the production incentive was not bonus but a form of additional wages for extra production effort, as clarified by the Supreme Court. The Tribunal also noted that the judgments cited by both parties were considered, with the Delhi Bench's judgment directly addressing the issue at hand.