1979 (8) TMI 115 - AT - Income Tax

Summary

Issues:
- Whether the customary bonus given by the assessee to its employees is outside the purview of the Payment of Bonus Act.
- Whether the amendment to s. 36(1)(ii) of the Act w.e.f. 25th Sept., 1975 will apply to the case of the assessee.

Analysis:
The appeal before the Appellate Tribunal ITAT Madras-A involved the issue of whether the customary bonus given by the assessee to its employees falls outside the purview of the Payment of Bonus Act and if the amendment to s. 36(1)(ii) of the Act from 25th Sept., 1975 applies to the case. The assessee, a Non-Banking financial institution, had been consistently paying bonuses to its employees at varying rates. The Income Tax Officer (ITO) disallowed a portion of the bonus payment, stating that it exceeded 20 percent of the staff's salary, as per s. 36(1)(ii) of the Act. The assessee contended that the bonus constituted a customary bonus and was not subject to the Bonus Act. The Assistant Commissioner of Income Tax (AAC) upheld the assessee's position, citing a Supreme Court decision and ruling that the customary bonus is outside the purview of the Payment of Bonus Act, thus the amendment to s. 36(1)(ii) did not apply.

The Departmental Representative argued that no employer can pay bonuses exceeding 20 percent of the salary under s. 17 of the Payment of Bonus Act, and since s. 36(1)(ii) only allows for allowable bonuses, the excess bonus should not be deductible. The Tribunal, after considering the arguments, upheld the AAC's decision. It referenced a prior Tribunal decision and the Supreme Court's ruling in a specific case, emphasizing that customary bonuses are not covered by the Payment of Bonus Act. The Tribunal reiterated that the Act's restrictions on bonus quantum apply only to types of bonuses outlined in the Act, not customary bonuses. It confirmed the AAC's order based on the prior Tribunal decision and the Supreme Court's interpretation of the Act, dismissing the Department's appeal.

In conclusion, the Tribunal affirmed that the customary bonus paid by the assessee was not subject to the Payment of Bonus Act, and the amendment to s. 36(1)(ii) did not apply in this case. The decision was based on the interpretation of relevant legal provisions and previous judicial precedents, ultimately leading to the dismissal of the Department's appeal.