Bombay High Court
Commissioner Of Income-Tax vs Rajaram Bandekar And Sons (Shipping) ... on 6 November, 1998
Equivalent citations: [1999]237ITR628(BOM)
Author: Pratibha Upasani
Bench: Pratibha Upasani
JUDGMENT B.P. Saraf, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal (the "Tribunal"), has referred the following questions of law to this court for opinion at the instance of the Revenue :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the expenses incurred on stevedoring charges and port dues for loading and unloading iron ore to export it are to be allowed as weighted deduction under Section 35B ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the payment of ex gratia amounting to Rs. 1,58,828 made to the Income-tax Act and entitled for deduction for the assessment year 1977-78 ?" (sic)
2. So far as question No. 1 is concerned, learned counsel for the parties are agreed that the controversy in this question stands concluded by the decision of this court in Forbes Forbes Campbell and Co. Ltd. v. CIT [1994) 206 ITR 495, in favour of the Revenue. In view of the above, question No. 1 is answered in the negative, i.e., in favour of the Revenue and against the assessee.
3. So far as question No. 2 is concerned, the controversy therein is whether the assessee is entitled to deduction of ex-gratia payment of Rs. 1,58,828 by way of bonus to the workmen. The Tribunal has allowed this claim of the assessee under Section 37 of the Income-tax Act, 1961 (the "Act"). Mr. R. V. Desai, learned counsel for the Revenue, submits that in case of expenditure in the nature of bonus paid to the employees for the services rendered, Section 36(1)(ii) would apply and the allowability of the expenditure as a deduction in computing the income of the assessee can only be determined by the test laid down in that provision. Mr. Desai further submits that it is not permissible to the assessee to claim deduction under the general provision for deduction contained in Section 37 of the Act. In support of this contention he relied upon the decision of this court in Subodhchandra Popatlal v. CIT/EPT [1953] 24 ITR 566.
4. We have heard Mr. S. N. Inamdar, learned counsel for the assessee, who fairly stated before us that in view of the above decision of this court, it is not open to the assessee to contend that the deduction in respect of bonus paid to the employees for the services rendered can be claimed under Section 37(1) of the Act. To this extent, it is agreed that the Tribunal was wrong in its conclusion. Mr. Inamdar, however, submits that ex-gratia payment in this case has been made to the workers who were not covered by the Payment of Bonus Act. That being so, the claim of the assessee for deduction should have been decided by the Tribunal by applying the test laid down in the second proviso to Section 36(1)(ii) of the Act. He, therefore, submits that it should be left open to the assessee to satisfy the Tribunal that the ex-gratia payment made by the assessee was allowable as a deduction under Section 36(1)(ii) of the Act read with the second proviso thereto.
5. In view of the above, we answer question No, 2 as follows :
The Tribunal was not correct in holding that the payment of ex gratia of Rs. 1,58,828 to the employees by way of bonus for the services rendered was allowable as a deduction under Section 37 of the Act. The question referred to us is, therefore, answered in the negative, i.e., in favour of the Revenue and against the assessee. The Tribunal may, however, afford the assessee reasonable opportunity of hearing to satisfy it that the conditions set out in the second proviso to Section 36(1)(ii) are fulfilled and if the Tribunal is so satisfied, it may allow deduction under Section 36(1)(ii) of the Act.
6. This reference is disposed of accordingly with no order as to costs.