HIGH COURT OF BOMBAY AT GOA
The ex-gratia payment in excess of the limits prescribed under the payment of Bonus Act either under section 36(1)(ii) or section 37(1) of the Income-tax Act, is allowable as business expenditure although the payment does not cover contractual or customary payment.
Maina Ore Transport Pvt. Ltd.
Reference under Income Tax No. 1 of 2004
August 22, 2008
RELEVANT EXTRACTS :
1. By this reference under section 256 (1) of the Income Tax Act 1961, the Income Tax Appellate Tribunal, Panaji Bench, Goa, (Tribunal for short) has referred the following questions of law for the opinion of this court at the instance of the Revenue:
(1) Whether the I.T.A.T. was justified in holding that the ex-gratia payment in excess of the limits prescribed under the payment of Bonus Act either under section 36 (1)(ii) or section 37(1) of the Act, is allowable as business expenditure.
(2) Whether the I.T.A.T. was justified in holding that ex-gratia amount paid over and above the amount paid as per Bonus Act was an allowable expenditure although the payment did not cover contractual payment or customary payment.
12. In the instant case, there is no dispute that the amount of Rs. 2,37,703 was paid by the assessee to its employees as ex-gratia payment. Such payment was over and above the prescribed limits of 8.33 per cent. There is also no dispute that the Commissioner of Income tax, Panaji as well as the Income Tax Tribunal have verified that such ex-gratia payment was made by the assessee. There is also no dispute that Commissioner of Income tax, Panaji and the Income tax Tribunal allowed consequential deductions from the assessee’s income.
13. In the case of M/s Raghuvansi Mills Ltd. the Division Bench of this Court (Coram: Dr. B.P. Saraf and D.R. Dhanuka, JJ) while deciding Income tax Reference No. 169 of 1987answered the following issues in the affirmative.
(1) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that Bonus of Rs. 5,26,767 was paid by the assessee company in excess of 8.33 per cent was allowable as a deduction under section 36(1) (ii) and that the restriction imposed by first proviso to section 36(1) (ii) applied to profit or productions linked Bonus and not to other payments?
(2) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the additional bonus of Rs. 5,26,767 is allowable as a deduction under section 37(1) inspite of specific restrictions imposed by proviso to Section 36(1)(ii)?
14. For the reasons stated above, we are of the view that the points for reference framed in paragraph 1 above deserved to be answered in the affirmative as the same are covered by the decisions of this court in the case of Commissioner of Income Tax v. Rajaram Bandekar and Sons (Shipping) Pvt. Ltd. (237 ITR 628 Bom) and The Commissioner of Income tax v. M/s Raghuvansi Mills Ltd. (Income Tax Reference No. 169/1987). Accordingly the reference is answered and the same may be returned to the Tribunal.