Business expenditure : Bonus : S. 36(1)(ii) and S. 37(1) of Income-tax Act, 1961 : A.Y. 1993-94 : Ex gratia payment over and above statutory limits prescribed under the Payment of Bonus Act, 1965, is allowable as business expenditure
CIT v. Maina Ore Transport (P) Ltd. 218 CTR 653 (Bom.)
In the A.Y. 1993-94 the assessee had made payment of ex gratia in the sum of Rs.2,37,702 to its employees in excess of the limit of 8.33% prescribed under the Payment of Bonus Act. The assessee had claimed the deduction of the said ex gratia payment as business expenditure. The AO disallowed the claim on the ground that it is in excess of 8.33% maximum statutory limit under the Act. The CIT(A) allowed the deduction holding that the amount was paid to maintain healthy relations and industrial peace. The Tribunal confirmed the decision of the CIT(A).
On reference by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under :
"Ex gratia payment in excess of the limits prescribed under the Payment of Bonus Act, 1965, is allowable as business expenditure, although the payment did not cover contractual payment or customary payment."