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TMI Blog1997 (12) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... 221, the Income-tax Officer disallowed a sum of Rs. 1,84,815 on the ground that the amount is in excess of 20 per cent. of the pay and in this view of the matter, he completed the assessment disallowing the claim of the assessee towards bonus. The assessee preferred an appeal against the order of the assessment made by the Income-tax Officer to the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held that the assessee was entitled to deduction of Rs. 3,55,221 in toto as the liability accrued in the year of account and it was based on commercial expediency. In so far as the arrears of bonus amount of Rs. 1,84,515 is concerned, the Commissioner (Appeals) upheld the order of the Income-tax Officer. According to the Commissioner (Appeals), the bonus based on the custom had accrued in the year ending on December 31, 1976, and the whole of the bonus paid at the rate of five months' salary must be deemed to have accrued during the year ending on December 31, 1976, and the fact that the Income-tax Officer in the assessment of the company for earlier years allowed bonus only to the extent of 20 per cent. of the bonus paid would not be a sufficient ground to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was right in holding that the liability to pay bonus of Rs. 1,84,575 relating to the period January 1, 1976, to December 31, 1976, relevant to the assessment year 1977-78 accrued only in the previous year relevant to the assessment year 1978-79, and, therefore, the assessee is entitled to deduction of the said amount ? 2. Whether the Tribunal's view that the assessee is entitled to deduction of bonus in excess of 20 per cent. of the salary is sustainable in law ?" Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the liability in so far as the claim made for the provision of Rs. 1,84,515 is concerned, accrued to the assessee at the end of the year ending on December 31, 1976, as the assessee was paying customary bonus and the customary bonus would ripen into liability at least at the end of the accounting year. The further submission of learned counsel for the Revenue is that though the Income-tax Officer has taken a view that the amount of bonus should be restricted to 20 per cent. of the salary or wages that would not prevent the accrual of the liability for the balance of the amount and, therefore, the Tribunal was not correct in holding that the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the previous year relevant to the assessment year 1978-79. We are unable to accept the contention of learned counsel for the Revenue that the liability to pay bonus accrued during the earlier year, for the reason that when the assessee was claiming the deduction in the earlier years for the provision made towards bonus of an amount equivalent to five months' salary, the Revenue disallowed the amount on the ground that it was in excess of the maximum limit of 20 per cent. of the salary or wages and it led to litigation between the assessee and the Tribunal allowed the claim of the assessee on the ground that the amount provided for was towards bonus and, therefore, the entire amount was liable to be deducted. But, during the previous year relevant to the earlier assessment year 1977-78, the assessee, consistent with the stand of the Department made a provision only to the extent of 20 per cent. of the wages or salary. It is not clear what had happened to the assessment result of the assessee for the year 1977-78, but, the provision made for 20 per cent. of the bonus created unrest among the employees. Therefore, it cannot be stated that the assessee-company accepted its li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the Revenue that the liability to pay bonus had accrued during an earlier year, when it was not accepted by the assessee to pay bonus in excess of 20 per cent. of the salary or wages and, hence we are not in a position to hold that the liability to bonus had accrued in the earlier year, particularly where it is a case of customary bonus. The decision of this court in CIT v. D. Mohamed Ismail [1997] 227 ITR 211, is an authority for the proposition that the Payment of Bonus Act is a complete code and is confined to profit oriented bonus and the Payment of Bonus Act is not applicable to customary bonus. This decision only establishes the proposition that it is open to the assessee to claim bonus in excess of the amount prescribed under clause (ii) of sub-section (1) of section 36 of the Act, provided the assessee satisfied that it was a customary bonus. But, in that case, this court has not decided when the liability to pay customary bonus would accrue. It is also relevant to notice that the amount paid in the instant case was not pooja bonus or festival bonus, and it was claimed only as a customary bonus. It is no doubt true that right from the year 1947 the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles laid down in that case for governing customary and traditional bonus connected with a festival cannot in our opinion be extended to what may be called a customary bonus unconnected with any festival." Therefore, the above decisions make it clear that the principles of payment of bonus connected with the festival cannot be extended to the bonus unconnected with the festival. There are no materials to indicate that earlier customary bonus was in any way connected with festival or pooja and in the absence of any material, we are of the opinion that those principles cannot be extended to cases unconnected with pooja or festival bonuses. We also hold that the Tribunal was right that the amount paid in excess of 20 per cent. of the salary or wages is allowable on the basis of commercial expediency, and it is seen from the records that there was unrest among the employees because they had not obtained the bonus which they would have obtained, due to the unilateral decision of the assessee which led to negotiations and discussions and, finally, the assessee-company in the year 1977 accepted the claim of the employees' union to pay the bonus. The decision was arrived at on ..... 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