Allahabad High Court
Abbas Wazir (P.) Ltd. vs Commissioner Of Income-Tax on 16 January, 1996
Equivalent citations: (1997)140CTR(ALL)538, [1996]220ITR141(ALL), [1996]86TAXMAN453(ALL)
Author: M. Katju
Bench: M. Katju
JUDGMENT
1. At the instance of the assessee, the following question has been referred to this court under Section 256(1) of the Income-tax Act, 1961, for its opinion by the Income-tax Appellate Tribunal :
" 1. Whether upon the facts and in the circumstances of the case, the Tribunal was justified in reversing the order of the first appellate authority which allowed the deduction of Rs. 1,28,107 which was claimed under the head 'Bonus payable' ?"
2. The question for consideration is whether, on the facts and circumstances of the case, the assessee can be allowed deduction in respect of "payment of bonus at the rate more than 8.33 per cent., i. e., the minimum limit of bonus.
3. Section 36(1)(ii) of the Act states as follows :
" (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28-- .....
(ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission;"
4. The first proviso to Clause (ii) was inserted by the Payment of Bonus (Amendment) Act, 1976, with retrospective effect from September 25, 1975, which is as under :
" Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (21 of 1965), apply shall not exceed the amount of bonus payable under that Act." (underlined by the court).
5. From the said proviso, it is clear that the payment of bonus shall not exceed the amount of bonus payable under the Payment of Bonus Act, 1965 (for short, "the Act of 1965").
6. It is, therefore, nothing but appropriate to refer to the relevant provisions of the Act of 1965. Section 11, Sub-section (1), of the Act of 1965, briefly, states that where in respect of any accounting year referred to in Section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent. of such salary or wage. Subsection (2) of Section 11 further states that in computing the allocable surplus in this section, the amount set on or the amount set-off under the provisions of Section 15 shall be taken into account in accordance with the provisions of that section.
7. From Section 11, it is clear that the maximum limit is twenty per cent. and the payment of bonus between the minimum and maximum limit will vary depending on the position of the allocable surplus, which according to counsel for the applicant was not at all available in the instant case. That being so, in our view, the assessee could have paid bonus under the Act of 1965 only at the minimum rate, i.e., 8.33 per cent.
8. The submission of Shri V. Upadhyaya, learned counsel for the assessee is that bonus was paid at 20 per cent., i.e., the maximum limit, under the agreement dated February 29, 1982. The question for consideration is whether the bonus at the maximum rate can be paid under an agreement. We have already pointed out that under the first proviso, the limit of payment of bonus will be the one as prescribed under the Payment of Bonus Act. The said Act prescribed the maximum limit at twenty per cent. and the payment of bonus between the minimum and the maximum limit will vary depending on the position of the allocable surplus, which are, admittedly, not available in the instant case, and, therefore, the permissible limit for this case under the Act of 1965 is only the minimum limit, i.e., 8.33 per cent. Payment in excess to that limit cannot be made under the first proviso. In our view, the existence of the agreement is absolutely irrelevant.
9. Then, Mr. Upadhyaya drew our attention to the second proviso and argued on that basis that provided the payment of bonus to the extent of maximum limit of twenty per cent. is reasonable, the same can be allowed under the second proviso. The second proviso being an exception to the first proviso, permits the payment of bonus in variation to the limit imposed by the first proviso, provided the amount 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 ;"
10. The submission of Shri Upadhyaya is, that the case of the applicant falls under Clauses (a) and (c) of the second proviso. So far as Clause (a) is concerned, no case was set up by the assessee before the authorities below at any stage that the payment of bonus is reasonable with reference to the payment of employees and the conditions of their services, and therefore, we refrain from going into this question.
11. Then the question is whether the payment of bonus at the rate of twenty per cent. falls under Clause (c). Shri Upadhyaya submits that the agreement dated February 29, 1982, implies that there was general practice in the business. In our view, the agreement does not imply general practice.
12. If the assessee wants to rely on that then it should have set up and established that case by cogent evidence. Neither was such case set up nor any evidence was adduced. Mere execution of the agreement cannot establish the general practice in such business about the payment of bonus to the maximum limit or more than that and, therefore, the case of the assessee does not fall under Clause (c) to the second proviso.
13. Though we do not agree with the reasoning given by the Tribunal that deduction at the rate of twenty per cent. is not allowable because the agreement was entered into on February 29, 1982, i.e., much after June 30, 1981, when the accounting year ended, we agree with the conclusion rendered by the Tribunal. It is not relevant whether the agreement was made after the accounting year or during the accounting year, but the question is as to what is the permissible limit under the provisions of the Payment of Bonus Act.
14. We, therefore, answer the question referred to this court for its opinion in the affirmative.