Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income-Tax vs Shanker Refrigeration Co. on 20 March, 1991
Equivalent citations: [1991]37ITD389(DELHI)
ORDER
M.C. Agarwal, Judicial Member
1. This is an appeal by the revenue arising out of the assessee's assessment for assessment year 1984-85.1 have heard the learned Departmental Representative and the learned counsel for the assessee have perused the material placed before me.
2. During the year under consideration the assessee paid Rs. 40,876 as bonus to its employees. This was @ 20% of their wages. The ITO observed that the assessee had no allocable surplus and, therefore, it was liable under the Bonus Act to pay only the minimum bonus i.e., 8.33% and, therefore, the excess was not allowable as deduction in terms of Section 36(1)(n) of the Act. He, therefore, disallowed a sum of Rs. 21,786. The assessee appealed to the CIT (Appeals), who deleted the disallowance holding that the amount was payable in terms of an agreement between the representatives of the Cold Storage Association, West Bengal and the representatives of the Labour Union through the Deputy Labour Commissioner, West Bengal. In his view since the payment was made in terms of the said agreement, the same was allowable under Section 37(1) of the Act. He, therefore, deleted the disallowance.
3. The learned Departmental Representative contended that the deduction on account of bonus has to be allowed only to the extent provided in Section 36(1 )(ii), which to that extent would override Section 37(1) and, therefore, deletion of the disallowance was improper. He placed reliance, inter alia, on Addl. CIT v. Moolchand Jaikishandas &Co. [1977] 108 ITR 500 (Guj.) in which while dealing with the payment of commission the Hon'ble High Court held that the same has to be restricted in terms of Section 36(1 )(u) and cannot be allowed under Section 37(1). The learned counsel for the assessee, on the other hand, supported the order of the CIT (Appeals).
4. As is evident, the bonus in question was paid in terms of agreement between the Cold Storage Employees Union of West Bengal on the one hand and the Cold Storage Owners Association on the other. The agreement was reached through the intervention of the Deputy Labour Commissioner, West Bengal. Therefore, the genuineness of the agreement and the reasonableness of the amount paid to the employees as bonus has not been disputed by the department. It is solely relying on the provisions of Section 36(1)07). The first proviso to Section 36(1)(ii) states that the deductions in respect of bonus paid to employee in a factory or other establishment, to which the provisions of Bonus Act, 1965 apply, shall not exeeed the amount of bonus payable under the Act. The second proviso applies to payment of bonus to which the first proviso does not apply and permits the deduction to be allowed if the payment of bonus is reasonable with reference to -
(a) the pay of the employee and the conditions of his service;
(b) the profits of the business or profession for the previous year in question; and
(c) the general practice in similar business or profession;
Section 10 of the Payment of Bonus Act governs the minimum bonus payable by an employer which is prescribed as 8.33% of the salary irrespective of whether the employer earns a profit or not. Section 11 then provides for the payment of maximum bonus which is prescribed at 20%. The liability to pay bonus at a rate above 8.33% arises when the allocable surplus exceeds the amount of minimum bonus payable but Section 11 restricts the maximum bonus payable to 20%. In the case before me the assessee has paid bonus @ 20%. A proper interpretation of Section 11 of the Payment of Bonus Act would be that it does not debar an employer from paying bonus up to 20% even if there is no allocable surplus. The assessing officer seems to have thought that since there was no allocable surplus, the assessee was debarred by the Bonus Act from paying bonus above 8.33%. This interpretation, in my view, is not correct. Section 11 permits payment of bonus up to 20% and the maximum limit of 20% seems to have been placed so that the basic grades of pay of the employees are not kept low. Similarly, when the first proviso to Section 36(1)00 uses the words "bonus payable under that Act", the word 'payable' is not to be interpreted as legally obliged to pay. The correct meaning of this word would be "permitted to pay" and read in that light 20% bonus paid by the assessee is permitted to be paid by Section 11 of the Bonus Act and was, therefore, within the limits prescribed by the first proviso.
5. In the alternative if it is considered that bonus exceeding 8.33% was not payable under the Payment of Bonus Act then the excess amount, which has been disallowed by the assessing officer, would come up for consideration under the second proviso to Section 36(1)00 because then the excess amount would be the amount to which the Payment of Bonus Act did not apply and if that be so, all the three conditions mentioned in the second proviso would be deemed to have been complied with because the payment has been made after arriving at an agreement between the employers and employees' union and that too through the intervention of the conciliation machinery in the Labour Department of the Government of West Bengal. For the above reasons I am of the view that the CIT (A) rightly deleted the addition made by the assessing officer. Upholding his decision the appeal of the Revenue is hereby dismissed.