Business expenditure : Bonus

Last updated: 26 May 2009

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Court :
Bombay High Court

Brief :
Business expenditure : Bonus : S. 36(1)(ii) of Income-tax Act, 1961 : A.Y. 1985-86 : Customary bonus over and above payable under the Bonus Act : Paid for last 10 years as a practice : Eligible for deduction u/s.36(1)(ii) second proviso.

Citation :
CIT v. Sesa Goa Ltd 221 CTR 590 (Bom.)

As a general practice in the business, the assessee had paid an amount of Rs.18,73,192 by way of bonus to the employees over and above the statutory bonus prescribed under the Bonus Act and claimed the deduction. The Assessing Officer disallowed the claim for deduction holding that it is not permissible u/s.36 of the Income-tax Act, 1961. The Tribunal allowed the claim.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under :

“(i) It is true that wherever a bonus is paid to an employee in excess or otherwise than what is required to be paid under the Bonus Act, such a payment is not entitled for deduction automatically, but the assessee has to satisfy all the three ingredients, namely, the pay of the employee and the condition of his service; the profits of the business or profession for the previous year in question; and the general practice in similar business and profession. The determination of these conditions should lead to bonus being reasonable, and therefore, entitled to deduction in terms of second proviso to S. 36(1)(ii).

(ii) In the present case, the assessee had been paying bonus for the last 10 years otherwise in excess of the Bonus Act and this had become a practice and the CIT(A) as well as the Tribunal have recorded the finding that such bonus was payable as a general practice followed in similar business or profession. The finding in question being a primary question of fact, there is no reason to interfere with the impugned order.”

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