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TMI Blog1985 (2) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) of the Income-tax Act, 1961 (' the Act '). He, therefore, disallowed this claim. 2. On appeal before the Commissioner (Appeals), the assessee relied upon the decision of the Hon'ble Supreme Court in Hukumchand Jute Mills Ltd. v. Second Industrial Tribunal [1980] 3 Taxman 43 and some decisions of the Tribunal in Indian Cashew Mfg. Co. v. ITO [1982] 1 ITD 516 (Hyd.), ITO v. Arya Vaidya Pharmacy (CBE.) Ltd. [1982] 1 ITD 748 (Mad.) and ITO v. Kasturi Ramesh Pai Co. [1982] 1 ITD 803 (Bang.). According to the Commissioner (Appeals) the amount could not be said to have been paid by way of bonus, though the calculation might have been made with reference to the salaries and wages in the same manner as if it was bonus. But there were clear circumstances to show that it was a compulsory payment for the protection, preservation and continuation of the business at the implicit behest of the State Government in consequence with past practice and in harmony with the position obtaining elsewhere in the region. He, therefore, allowed the claim. The revenue has come up in second appeal before us. 3. We have heard the representatives of the parties at length in this appeal. The main reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute, but it cannot be said that the amount paid thereunder would be something different from bonus. In fact, there was no dispute about the claim of the workmen. The Tribunal's decisions, on which the assessee has placed reliance, do not appear to have properly considered the effect of the proviso to section 36(1)(ii). The decision in Kasturi Ramesh Pai Co.'s case, in fact, refers to the decision of the Hon'ble Supreme Court in Hukumchand Jute Mills Ltd.'s case, which case related to a period earlier than the amendment in the Payment of Bonus Act. The decision in Arya Vaidya Pharmacy (CBE) Ltd.'s case does not quote any authority in support of the conclusion arrived at but simply purports to suggest the fact that there was a vital difference between the payment by way of bonus under section 36(1)(ii) and ex gratia payment under section 37(1) of the Act. In that case, the learned members were of the opinion that what was prohibited by section 36 can be permitted as allowable under section 37. Probably, they failed to notice the opening line of section 37(1) which permits allowability of other expenditure but specifically provides that it should not be an expenditure of the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the balance of 4.42 per cent was settled as ad hoc payment by way of a welfare measure to the workers. On the basis of the agreement reached with the workers' union and the management at the instance of the Assistant Labour Commissioner, a total sum of Rs. 11,63,653 was paid to the employees comprising of Rs. 7,55,877, calculated at Rs. 8.30 per cent on account of bonus and Rs. 4,07,776 calculated at 4.42 per cent of the total earnings of the workers as ad hoc payment being in the nature of welfare expenses. There is no dispute about the first sum of Rs. 7,55,877 but in regard to the second sum of Rs. 4,07,776, the ITO held that, " since the assessee-company had no allocable surplus, it should have paid bonus to its employees only at the rate of 8.33 per cent, i.e., Rs. 7,55,877. Instead, the assessee-company made excess payment of bonus to the tune of Rs. 4,07,776 and this is not deductible in terms of section 34 of the Payment of Bonus (Amendment) Act, 1977 and, therefore, also is not allowable, in view of the provisions of section 36(1)(ii) of the 1961 Act,". The Commissioner (Appeals) found that, " the amount had to be paid by the appellant company due to the pressure exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is paid though called bonus as remuneration for work, it is to be regarded as wages. Now, in the present case, there is no dispute that the management offered its workers bonus at the rate of 8.33 per cent of the earnings of the workers as against 20 per cent demanded by them. The company did not and in fact could not pay more under the existing law and it referred the dispute to the office of the Assistant Labour Commissioner, Jalpaiguri, for conciliation. This is evident from the terms of settlement reached between the parties in dispute as follows : " 4. Short recital of the case --- The above-mentioned management vide their letter dated sought the intervention of this Directorate, when a dispute arose over the quantum of bonus payable to the workers for the accounting year 1978-79. The union/s demanded 20 per cent bonus, whereas the management was agreeable to pay 8.33 per cent as per the computation formula of the Bonus Act. This dispute resulted in agitation by the workers and thus production was hampered. After protracted discussion, the issue of bonus is settled as per the following terms and conditions. 5. Terms of settlement : It is agreed by and between the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, the amount paid was in excess of the admissible amount under the Payment of Bonus Act. He, accordingly, disallowed the excess which came to Rs. 36,826. The Commissioner (Appeals) held that the excess amount paid was in fact ' incentive wages ', falling outside the provisions of the Payment of Bonus Act and, hence, he allowed it as a deduction. The Tribunal upheld the Commissioner (Appeals)'s order by observing, inter alia, that the amount paid by the assessee was expended wholly for purposes of the assessee's business because it was the price paid to settle the industrial dispute. In the instant case, as we have noted earlier, the assessee in order to purchase peace with its workers had to agree for payment of a sum in excess of the amount payable as bonus. The assessee's learned counsel, at the time of hearing before us, pointed out that in the assessment year 1979-80, the assessee also paid to its workers ad hoc. payment at the rate of 7.67 per cent over and above the bonus paid at the rate of 8.33 per cent making a total of 16 per cent of the gross earnings of the workmen. The entire claim of the assessee amounting to Rs. 11,38,483, according to the learned counsel, was all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to the Labour Directorate and in a tripartite conference, the bouns was settled on 19-9-1978 when an agreement was signed by the management, the union representative and the Assistant Labour Commissioner, Jalpaiguri, as the Conciliation Officer. It was agreed upon in the agreement that the management would pay the workers bonus at the rate of 8.33 per cent on the total earnings during the year as eligible under the Act. It was further agreed that a sum equivalent to 4.42 per cent of the total earnings of the workmen will be paid as welfare expenses/ad hoc payment. The total payment of Rs. 11,63,653 was made by the management. A sum of Rs. 7,55,877 was paid as calculated at the rate of 8.33 per cent and the balance amount of Rs. 4,07,776 was paid at the rate of 4.42 per cent. The ITO allowed bonus paid at the rate of 8.33 per cent at Rs. 7.55,877, but the additional amount paid by the assessee at the rate of 4.42 per cent at Rs. 4,07,776 was disallowed by him. 3. The assessee before the Commissioner (Appeals) contended that the additional amount was allowable under section 36(1)(ii). The assessee in this connection relied on Hukumchand Jute Mills Ltd.'s case and the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) and CIT v. Chandulal Keshavlal Co. [1960] 38 ITR 601 (SC). He stated that one could not go by the nomenclature but the actual nature of the expenditure must be examined. The assessee by an agreement with the labour has not paid bonus and it has been paid as welfare expenses. In the present case, the assessee and the labour have accepted that the payment was to be made as welfare expenses and not as bonus. He relied on National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 69 (SC) at page 77. 7. The assessee's counsel supported the argument on the basis of the order of the Accountant Member and further filed a certificate from the Indian Tea Planters Association, dated 30-8-1984, showing the payment of bonus at the rate of 8.33 per cent and the additional bonus in respect of 15 tea gardens and stated that the additional payment was made following the trade practice and, therefore, the payment was allowable under section 36(1)(ii). Alternatively, it was allowable under section 37. The counsel relied on the order of the Calcutta Bench in IT Appeal Nos. 2124, 2125 and 2126 (Cal.) of 1982 and the orders of the other Benches of the Tribunal, as indicated before the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would further get a sum equivalent to 4.42 per cent of the total earnings as welfare/ad hoc payment. The dispute between the labour and the management was in respect of the payment of bonus. It could not be settled amicably and ultimately the matter was referred to the Labour Directorate who decided that in addition to the payment of 8.33 per cent, the labour should be paid additional amount at the rate of 4.42 per cent. Therefore, the total payment made by the assessee was in the nature of bonus, even though the additional amount was paid as welfare/ ad hoc payment. 10. Having this fact in mind that the assessee had paid the additional amount of bonus of Rs. 4,07,776 during the year, it is to be considered whether this payment was allowable either under section 36(1)(ii) or under section 37(1). The first proviso to section 36(1)(ii) restricts the payment of bonus as payable under the Payment or Bonus Act. If the provisions of the Payment of Bonus Act along with the title of the Act are read, it is clear that the Payment of Bonus Act envisages only three types of bonus, viz. : (a) bonus based on profit-sharing (sections 10 and 11) ; (b) puja and customary bonus (section 17) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 31A. It has been indicated earlier that the contractual bonus within the meaning of section 31A is allowable even up to 20 per cent. But the amount payable under section 31A must be linked up with production or productivity. Without going to the dictionary meaning, the popular meaning of production or productivity is considered. When the bonus is based upon graded production, it is known as production bonus whereas the productivity bonus means overall increase in the production and quality. The payment has not been linked up either with the graded production or with the overall increase in production of the assessee. Therefore, the payment made by the assessee could not be considered as payment under section 31A. 12. It would be relevant before proceeding further to consider the allowability of the additional amount as customary or puja bonus, though the same had been brought under the purview of the Payment of Bonus Act under section 17. But its consideration in the Payment of Bonus Act is very limited. If the payment of customary or puja bonus, is less than the ceiling prescribed for the payment of bonus, it is to be taken into consideration. The legislation is silent u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus which was outside the purview of the first proviso to section 36(1)(ii) and, hence, the additional payment made by the assessee is allowable under section 36(1)(ii). 14. It would be relevant to mention that even otherwise the additional payment made by the assessee is allowable under section 37. The assessee has relied upon several decisions of the Tribunal and those decisions had been considered by the Bombay Bench in ITO v. National Organic Chemical Industries Ltd. [1984] 10 ITD 398. The learned Tribunal has also referred to the decision of the Calcutta Bench in Shaw Wallace Gelatines Ltd.'s case. The assessee has also relied on the order of the Calcutta Tribunal in IT Appeal Nos. 2124 to 2126 (Cal.) of 1982. The decision so cited by the assessee and referred to hereinbefore has accepted the claim of the assessee that the additional payment was allowable even under section 37. The view expressed by the learned Tribunal of the various Benches is in line with the conclusion which is arrived at hereinafter. 15. Section 36(1)(ii), as discussed above, speaks of the bonus payable under the Payment of Bonus Act and the other bonus which is payable in terms of the second provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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