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TMI Blog1983 (12) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... been claimed and allowed and there is no dispute about it. The second clause of the agreement is that for the three accounting years 1978, 1979 and 1980, the management will pay additional amount equal to 60 per cent of the bonus liability subject to a minimum of 3.67 per cent and a maximum of 12 per cent in consideration of the assurance of the trade unions to extend their co-operation for uninterrupted and smooth working and better profit in the mills. Under Annexure II, the assessee-mills which is at item No. 64 has to pay 12 per cent as additional payment. This amounted to Rs. 4,99,916. According to the revenue, this amount is an additional bonus and being in excess of 20 per cent prescribed as the maximum under the Payment of Bonus Act cannot be allowed as a deductible expenditure under section 36(1)(ii) of the Income-tax Act, 1961 ('the Act'). On the other hand, according to assessee, this amount was not bonus at all, but an expenditure laid out for the purpose of the business as without such payment, it would not have been possible to carry the workers with them and run the factory at all. Therefore, it was claimed that this amount was to be allowed as a deduction under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bonus was a recognition of the fact that the labour has contributed to the earning of the profit and is entitled to a share in it and it was intended to narrow down the gap between the living wage which the labour is entitled and the actual wage received by it. Conformably with this concept, when the Act was enacted, the provision for deduction of bonus was given in section 36(1)(ii) as follows : " 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-- (i) (ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission : Provided that the amount of the bonus or commission is reasonable with reference to-- (a) the pay of the employee and the conditions of his service (b) the profits of the business or profession for the previous year in question ; and (c) the general practice in similar business or profession ; " The Legislature then thought of modifying the law with regard to the payment of bonus and enacted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was brought out by the Supreme Court in the case of Hukumchand Jute Mills Ltd. v. Second Industrial Tribunal AIR 1979 SC 876 where it was held that it was clear that the Act did not deal with the bonus other than profit-sharing bonus. It, therefore, becomes necessary for us to consider whether the amount calculated at 12, per cent, paid over and above the bonus payable under the Payment of Bonus Act, was in the nature of profit-sharing bonus or other bonus and whether it is deductible under section 36(1)(ii) or under section 37. Clearly it is not a profit-sharing bonus because the agreement did not envisage that it should be paid as a share of profit. This is underlined by the admitted fact that the additional amount was not to be taken into account for the purpose of set on and set off of the bonus from the available surplus of the other accounting years. Clearly, therefore, this additional amount was not a profit-sharing bonus at all. The question is whether it is a bonus otherwise allowable under section 36(1)(ii) or an expenditure laid out for the purpose of the business under section 37. It has been held by the Madras High Court in the case of N.M. Rayaloo Iyer Sons v. CIT/E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 34(iii) by the Amendment Act, 1965, there was a ban on payment of bonus exceeding 20 per cent and, therefore, the amount paid in excess should be considered to be illegal and not qualified for deduction under section 36(1)(ii). There are several reasons why we cannot accept this contention. Reliance was placed by the revenue on the decision of the Madras High Court in the case of S. Kothandaraman which upheld the validity of section 31A of the Payment of Bonus Act providing for the maximum of 20 per cent. Reliance was also placed on the observation that the restriction of the maximum was valid because it was in public interest and it was designed to protect the interest of the revenue also. But those observations relating to the validity of a section cannot affect the validity of a payment when in fact that payment has been made under the auspices of the State Government itself. We find that the dispute was resolved by conciliation under section 18(1) of the Industrial Disputes Act, 1947. Moreover, the Payment of Bonus Act provides that any agreement varying the method of payment of bonus has to have the approval of the State Government. It is impossible to imagine that the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since the payments were made in the earlier accounting years, the deduction cannot be allowed in the previous year relating to this assessment year. But, it is well settled that wherever a liability occurs under a settlement, the deduction has to be given only in the year in which the settlement was made even though the payment might have been made earlier because the liability occurs only on the settlement of the dispute and the payment earlier was only an amount advanced and not appropriated to any particular accrued liability--CIT v. Amrit Banaspati Co. Ltd. [1966] 59 ITR 388 (All.). Therefore, the order of the Commissioner (Appeals) allowing this deduction was correct and must be upheld. 7. The next item in dispute relates to the claim for deduction of Rs. 11,333 towards repairs of certain buildings which have been given as rent-free quarters to the officers of the company. The Commissioner (Appeals) has found that the disallowance of this amount was unjustified because though there may be some indirect benefit to the employees, the expenditure was intended primarily to protect the assets of the assessee. We agree with this finding of the Commissioner (Appeals) and we, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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