1983 (12) TMI 143 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of additional bonus payment under section 36(1)(ii) or section 37 of the Income-tax Act, 1961.
2. Deduction of amounts written off under a settlement agreement.
3. Deduction for repairs of buildings provided as rent-free quarters.
4. Disallowance under section 40A(5) concerning salary and perquisites paid to the managing director.
5. Computation of extra shift allowance for depreciation.

Detailed Analysis:

1. Deduction of Additional Bonus Payment:
The primary issue was whether the additional bonus payment of Rs. 4,99,916, made under a settlement agreement, could be deducted under section 36(1)(ii) or section 37 of the Income-tax Act, 1961. The revenue argued that the payment exceeded the 20% limit prescribed by the Payment of Bonus Act, 1965, and thus could not be allowed as a deductible expenditure. The assessee contended that the payment was not a bonus but an expenditure necessary for the business. The Tribunal held that the additional payment was not profit-sharing bonus but a necessary expenditure for business operations, making it deductible under section 37. Even if considered under section 36(1)(ii), the payment was deemed reasonable and allowable due to the industry's collective agreement and the necessity for smooth operations.

2. Deduction of Amounts Written Off:
The second issue involved the deduction of Rs. 3,23,159 written off under a settlement agreement dated 24-1-1980. The revenue objected, arguing that the payments were made in earlier years and should not be deducted in the current assessment year. The Tribunal upheld the Commissioner (Appeals)'s decision, stating that the liability arose upon settlement, making the deduction allowable in the year of settlement, consistent with the precedent set in CIT v. Amrit Banaspati Co. Ltd.

3. Deduction for Repairs of Buildings:
The third issue was the disallowance of Rs. 11,333 for repairs to buildings used as rent-free quarters for officers. The Commissioner (Appeals) found the disallowance unjustified, noting that the expenditure was primarily for asset protection. The Tribunal agreed, upholding the deletion of this disallowance.

4. Disallowance under Section 40A(5):
The fourth issue concerned the disallowance under section 40A(5) for the managing director's salary and perquisites. The revenue argued for applying section 40(c), which would result in a higher disallowance. The Tribunal upheld the Commissioner (Appeals)'s application of section 40A(5), noting that the managing director was also an employee, and thus the ceiling prescribed by section 40A(5) was appropriate.

5. Computation of Extra Shift Allowance:
The final issue involved the computation of extra shift allowance for depreciation. The Commissioner directed the ITO to follow the CBDT circular, which required computation based on the working of the concern as a whole, not individual machinery. The Tribunal confirmed this direction, referencing the Supreme Court's decision that such circulars are binding on the revenue.

Conclusion:
The Tribunal confirmed the order of the Commissioner (Appeals) on all issues, allowing the deductions and disallowances as appropriate and dismissing the revenue's appeal.