1984 (10) TMI 120 - AT - Income Tax

Summary

Issues:
1. Disallowance of excess bonus payment by Income-tax Officer for assessment years 1978-79 and 1979-80.
2. Contention regarding bonus payment being in terms of settlement and admissibility as a deduction.
3. Interpretation of bonus payment under the Industrial Disputes Act and Payment of Bonus Act.
4. Analysis of the nature of additional payment beyond the statutory bonus percentage.

Analysis:
The judgment by the Appellate Tribunal ITAT MADRAS-C involved two appeals by a co-operative society operating a spinning mill for the assessment years 1978-79 and 1979-80. The Income-tax Officer disallowed the excess bonus payment beyond the statutory requirement, citing it as not permissible under the Bonus Act. The Officer considered the additional payment as not justifiable based on a settlement. For the subsequent year, a similar disallowance was made for the excess bonus amount. The CIT (Appeals) upheld the disallowance, stating that only the minimum bonus was admissible due to the company's operational loss.

The assessee contended that the bonus payment was in accordance with a settlement under the Industrial Disputes Act, with the additional amount being ex gratia payment, not bonus. The terms of the settlement were crucial in determining the nature of the payment. The Tribunal analyzed the settlement terms, which indicated that the additional payment was made for the smooth functioning of the mills, not linked to profits but as a commercial expedient to ensure cooperation from labor. Citing a Supreme Court case, the Tribunal emphasized that as long as the payment was for commercial expediency, it could be considered an allowable deduction.

The Tribunal concluded that the additional payment was not bonus but ex gratia payment, exempt from the statutory bonus ceiling. As it was made for promoting business and earning profits, it was deemed an allowable deduction under section 37(1) of the Income-tax Act. The judgment allowed the appeals, highlighting the distinction between bonus and ex gratia payment, ultimately permitting the additional payment as a deductible expense.