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TMI Blog1993 (2) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... athe as well as the learned departmental representative Shri Gautam Kar at length. Their arguments are taken into consideration. 4. The appellant filed the returns of income for the assessment years under appeals on 30-6-1986 and 30-7-1987 respectively. The appellant declared the total income at Rs. NIL for both the assessment years under appeals. There were no surplus funds for allocation. The unabsorbed investment allowance was to be carried forward amounting to Rs. 16,08,059 and Rs. 14,70,420 for the assessment years under appeals. Over and above, the unabsorbed investment allowance and the unabsorbed 80J relief was also allowed to be carried forward amounting to Rs. 15,48,000 for the assessment year 1980-81. The income showed and assessed remained at NIL even after allowing the carry forward of the unabsorbed investment allowance and the unabsorbed 80J relief. The Assessing Officer has already allwed as a deduction the payment of bonus at 8.33 per cent amounting to Rs. 17,62,451 and Rs. 17,16,833 as per para 9.5 of the assessment order for the assessment year 1986-87 and para 9 of the assessment order for the assessment year 1987-88. The unabsorbed investment allowance and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ex gratia was paid to them, except claiming that this was paid to them. If it is a bonus linked with the production or productivity, the details are required to be looked into by the fact finding authority. It would not be sufficient to say that the appellant has decided to pay the bonus according to the amended provisions of the Payment of Bonus Act, 1965. It also cannot be made out that how each worker contributed to the production and productivity and how much sugarcane was supplied by him for crushing. 7. It is necessary to look into the provisions of production or productivity linked with the incentive bonus and ex gratia payment. So far the production or productivity is concerned, the assessee has not shown that during the relevant accounting periods for the assessment years under appeals there was a much more production of sugar than the earlier years. There is also nothing on record that the temporary workers and regular employees threatened at any time to go on strike and to bring the manufacturing activity of sugar by the appellant at stand still. It is argued in the general sense that the employees and the workers threatened to go on strike and for that reason the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iwali bonus and ex gratia payment totalling to Rs. 69,70,473. 8. Similar is the case for the assessment year 1987-88 wherein the appellant debited Diwali bonus at 20 per cent and ex gratia payment at 10 per cent to the manufacturing account and profit and loss account. For this year also, the Assessing Officer took the same view as is taken for the assessment year 1986-87. 9. Shri Sathe argued that the labour union demands the bonus every year in excess of 8.33 per cent and therefore, the appellant was liable to pay the same. If there was any discussion between the appellant-company and its employees or labour union the terms and conditions of such discussions should have been reduced into writing and brought on record. The appellant has tried to file copies of the agreements entered into between the appellant sugar factory and the employees. The bonus is something given in addition to what is generally received or strictly due to the recipients. Section 36(1)(ii) reads as follows : " (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 dividends if it had not been paid as bonus or com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent in spite of incurring heavy losses. To do so, would not be a commercial expediency according to the business point of view of businessmen. Moreover, this payment has to be judged with reference to the requirement of the business. Those requirements are the pay of the employees, their conditions of services, profits of the business for the year in question and the amount so paid must be reasonable having regard to the actual service rendered by the employees. There are no such facts on record to arrive to a conclusion that either the incentive productivity bonus or the ex gratia payment was reasonable with reference to the pay of the employees, their service conditions and profits of the business for the years under consideration. In the absence of these necessary facts taking such a decision does not amount the fair and reasonable decision of normal and prudent businessman. There must be large profits after providing for salary or remuneration to the employees and other prior charges such as interest on capital, depreciation reserve etc, In that event only, in all fairness the incentive productivity bonus or ex gratia payment and its allowability can be considered favourab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess payment of bonus than 8.33 per cent must be linked with production or productivity. That means the appellant must establish that the production or manufacturing the sugar was much more during the relevant accounting year than the earlier years and because of such production the profits earned were also much more and no losses were incurred or allowed to be carried forward. Such is not a case in the instant appeal. Alternatively a note to section 31A as introduced by the Ordinance read to say special provision with respect to payment of bonus to certain employees. The appellant is expected to establish that the special provisions with respect to certain employees for payment of bonus was necessary. Neither the appellant established the special provisions nor certain employees for making the payment of bonus. 13. Shri K.A. Sathe also argued that for maintaining the industrial peace it was necessary to make the incentive productivity bonus. Agreement entered into between the employees and employer cannot be held to be binding on the department without examining the reasonableness of the terms and conditions mentioned therein. The factors related to maintain the industrial pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards other employees, who are not covered by the Payment of Bonus Act. 1965 bonus in excess of what is reasonable under the second proviso to this clause is not deductible : (iii) as regards commission payable to any employee, the test of reasonableness under the second proviso has to be satisfied in every case. The second proviso requires that the amount should be reasonable, having regard to (a) the pay of the employee and the conditions of his service ; (b) the profits of the business of the year ; and (c) the general practice in similar business, If the conditions of this clause are not fulfilled, the assessee would not be entitled to claim a deduction under the residuary section, section 37 in respect of bonus or commission, otherwise the result would be nullification of the express conditions laid down by this clause." The learned departmental representative contended that the payment of incentive bonus and ex gratia in excess of 8.33 per cent is not reasonable and allowable as a deduction. The conditions laid down are not fulfilled. 15. The cumulative effect of the discussions made above, does not indicate to allow assessee's claim regarding the excess incentive pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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