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Issues:
1. Interpretation of section 36(1)(ii) of the Income-tax Act, 1961 regarding deduction of bonus paid in excess of 20%. 2. Applicability of section 31A of the Payment of Bonus Act, 1965 in determining bonus deduction. 3. Examination of the reasonableness of bonus paid under section 36(1)(ii) and section 37 of the Income-tax Act, 1961. 4. Error in the Appellate Tribunal's consideration of the provisions of section 31A of the Payment of Bonus Act, 1965. 5. Impact of the second proviso to section 36(1)(ii) on bonus deductions. Detailed Analysis: 1. The case involved a question regarding the deduction of bonus paid in excess of 20% under section 36(1)(ii) of the Income-tax Act, 1961. The Appellate Tribunal allowed the deduction based on a resolution by the company's directors to pay additional bonus, which was found to be in excess of the amount payable under the Payment of Bonus Act, 1965. The Tribunal considered the continuous dialogue between management and labor union, stating that the liability to pay the additional bonus accrued in the previous year, and the payment was made accordingly. 2. The Appellate Tribunal referred to section 31A of the Payment of Bonus Act, 1965, which allows for payment of additional bonus linked with production or productivity. The Tribunal noted that the second proviso of section 31A, limiting bonus to 20% of salary, was not applicable during the relevant accounting year. However, the Revenue contended that the Tribunal erred in not considering the applicability of the proviso to the claim made by the assessee. 3. The counsel for the assessee argued that the provisions of section 36(1)(ii) and its second proviso are not exhaustive, and deductions can be claimed under section 37 of the Income-tax Act, 1961 as well. It was further contended that the second proviso to section 36(1)(ii) allows for examining the reasonableness of bonus paid when not covered by the first proviso. Various decisions were cited to support the argument that the bar imposed by the first proviso applies to specific contractual payments under the Payment of Bonus Act, leaving room for other types of bonuses to be considered for deduction. 4. The court noted an error in the Appellate Tribunal's consideration of section 31A of the Payment of Bonus Act, 1965, which impacted the conclusion reached. The court highlighted decisions from the Kerala High Court supporting the assessee's claim, emphasizing the need for a proper examination of the appeal based on the relevant legal provisions. 5. Due to the error in the Tribunal's consideration and the need for a thorough examination of the legal provisions, the court directed the Appellate Tribunal to rehear the appeal, allowing both parties to raise all contentions. The court remitted the matter to the Tribunal for a fresh consideration, following the approach taken by the Kerala High Court in a similar case.
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