1980 (10) TMI 110 - AT - Income Tax

Summary

Issues:
1. Deduction of Silver Jubilee Bonus as business expenditure.
2. Applicability of s. 36(1)(ii) of the IT Act.
3. Interpretation of the Payment of Bonus Act, 1965.
4. Commercial expediency in bonus payments.

Analysis:
The appeal pertains to the deduction of a Silver Jubilee Bonus paid by the assessee during the accounting period for the assessment year 1977-78. The Income Tax Officer (ITO) denied the deduction, considering it a capital payment made voluntarily by the assessee. The CIT (Appeals) upheld the disallowance based on the first proviso to s. 36(1)(ii) of the IT Act, inserted by the Payment of Bonus (Amendment) Act, 1976, limiting the bonus deduction to the amount payable under the Payment of Bonus Act, 1965. The CIT (A) relied on s. 36(1)(ii) which restricts the deduction to the bonus payable under the Payment of Bonus Act, 1965.

The Tribunal observed that s. 36(1)(ii) applies when a sum is payable to an employee as bonus under the Payment of Bonus Act, 1965, limiting the deduction to the prescribed amount under that Act. However, in the present case, the Silver Jubilee Bonus was paid ex gratia on a special occasion, not covered by the Bonus Act. Referring to the case law of Sasson J. David & Co. (Pvt) Ltd. vs. CIT, the Tribunal emphasized that payments made for commercial expediency and to facilitate business operations qualify as business expenditure under s. 10(2)(xv) of the IT Act.

The Tribunal held that the Silver Jubilee Bonus paid by the assessee to its employees was a legitimate business expenditure, expedient and incidental to the business. Since the payment was not capital or personal expenditure but aimed at business promotion during the Silver Jubilee celebrations, it qualified as an expense wholly and exclusively for business purposes. Consequently, the Tribunal allowed the deduction under the head 'profit and gains of business,' overturning the earlier disallowance.

In conclusion, the Tribunal allowed the appeal by the assessee, recognizing the Silver Jubilee Bonus as a deductible business expenditure, distinct from the bonus payable under the Payment of Bonus Act, 1965.