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TMI Blog2024 (3) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... n the aggregate sum to its workmen was for the services that were rendered by them during the previous year under consideration and since such expenditure was incurred for the purpose of earning the income of the previous year, it must be deducted in the previous year. Ex-gratia bonus paid to the employees over and above the eligible bonus under the Payment of Bonus Act - allowable expenditure u/s 37 (1) or not? - As in Commissioner of Income Tax V/s. Maina Ore Transport P. Ltd. [ 2008 (8) TMI 504 - BOMBAY HIGH COURT] a Division Bench of this Court, after considering Rajaram Bandekar Sons (Shipping) Pvt. Ltd. (Supra), held that the Tribunal was justified in holding that the ex-gratia payment in excess of the limit prescribed under the Payment of Bonus Act, 1965, either under Section 36(1)(ii) or Section 37(1) of the Act was allowable as business expenditure. The Court also held that the Tribunal was justified in holding that ex-gratia amount paid over and above the amount paid in accordance with the Bonus Act was an allowable expenditure although the payment did not cover contractual payment or customary payment. We answer the questions of law in negative. We hold that the ITAT was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer. It is that order passed by the ITAT on 8th April 2002 which is impugned in this appeal. Only two disallowances matter to this appeal, i.e., additional salary and wages amounting to Rs. 17 lakhs arising out of the Justice Palekar Award and ex-gratia bonus amounting to Rs. 16,28,258/- over and above the eligible bonus under the Payment of Bonus Act (the Act). 4. The two questions were answered by the ITAT in a very cryptic manner. As regards question no. 1, the Assessing Officer found that there was debit of Rs. 17 lakhs representing provision for salary and wages arising out of Justice Palekar Award. The Assessing Officer noticed from the agreement between the management and the employees that memorandum of settlement to reclassification with effect from 1st January 1986 was signed on 8th May 1987, i.e., after the close of the accounting year. The Assessing Officer, therefore, held that the liability to pay additional wages arose only after signing of the agreement. According to the Assessing Officer even under mercantile system of accounting, deduction of the said provision cannot be allowed. It is deductible in the year in which the award was signed and li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 76,680, though it was discharged subsequent to the close of the previous year with which we are concerned, must be allowed as a deduction. The payment in that aggregate sum was made by the assessee to its workmen for the services that were rendered by them during the previous year under consideration. Such expenditure was incurred for the purpose of earning the income of the previous year and must be deducted. We respectfully agree with this view. 5. As regards question no. 2, the Assessing Officer found that assessee had paid ex-gratia bonus amounting in all to Rs. 16,28,258/-. The Assessing Officer negatived assessee s claim of deduction in view of first proviso to Section 36(1)(ii) of the Act and observed that the disallowances was subject to rectification and in case it is shown that assessee had allocable surplus to pay bonus of 8.33% he would revise the assessment order. On appeal, the CIT(A) held that the impugned amount is an allowable expenditure under Section 37(1) of the Act. The ITAT, in four lines, set aside the order of the CIT(A) and restored that of the Assessing Officer by simply saying On consideration of the arguments advanced by the ld. representatives of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment is justifiable as reasonable payment. It was observed that any other construction of the said provision would be artificial and may not be in, keeping with such a benevolent provision. The decision in the case of Rajasthan State Mineral Development Corporation [2003] 261 ITR 479 (Raj) is somewhat similar to the facts of the instant case. The assessee-company in the said case claimed deduction of ex-gratia payment to its employees, the Assessing Officer negatived the claim on the ground that the assessee had suffered a loss and no outstanding performance has been shown. The appellate authority also confirmed the order of the Assessing Officer. The Rajasthan High Court held that the payment could be allowed under section 37 since it has been incurred wholly or exclusively for the purpose of business. It further held that the payment has been made to maintain industrial harmony and in order to run the business. 9. We may usefully refer to the decision of the apex court in the case of Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai, AIR 1976 SC 1455. (the hon'ble Justice V. R. Krishna lyer and N. L. Untwalia JJ.) The apex court considered the provisions of the Payment of Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nus and matters connected therewith and did not govern customary traditional or contractual bonus. The omission to mention the name of a festival as a matter of pleading does not detract from the claim of customary bonus. 10. Learned counsel for the appellant Shri S. R. Rivonkar with his usual to fairness brought to out notice the decision of this court (Division Bench Coram Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani JJ) in CIT V Rajaram Bandekar and Sons (Shipping) P. Ltd. (1999) 237 ITR 628 (Bom). 11. In the said case reference was made for the opinion of the High Court as regards to the payment of ex-gratia, to the tune of Rs. 1,58,828 to the employees and whether such payment can be deducted as business expenditure by the assessee. This court held that the Tribunal in the said case was not right in holding that the payment of ex-gratia amount of Rs. 1,58,828 to the employees was by way of bonus for the services rendered and accordingly allowable as deduction under section 37 of the Act. The High Court remitted the matter back to the Tribunal for deciding the point afresh thereby giving reasonable opportunity of hearing to the assessee to satisfy the Tribunal that the conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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