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income-tax Officer Vs. Gopalpur Tea Co. Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1985)12ITD259(Kol.)
Appellantincome-tax Officer
RespondentGopalpur Tea Co. Ltd.
Excerpt:
1. the dispute in this appeal relates to the claim for rs. 4,07,776, which the assessee had paid to its employees under the head 'labour welfare and incentive'. the ito noticed that the assessee actually paid bonus amounting to rs. 11,63,653. out of this, rs. 7,55,877 was paid to the bonus account but the balance amount was paid under the head 'labour welfare and incentive'. the ito also went through the allocable surplus, wherein he found that bonus amounting to rs. 7,55,877 only could have been paid in view of the amendment by the payment of bonus (amendment) act, 1977. therefore, according to him, the assessee-company could not have paid a single penny over and above this amount and the payment of rs. 4,07,776 paid by the assessee was not deductible in terms of section 34 of the.....
Judgment:
1. The dispute in this appeal relates to the claim for Rs. 4,07,776, which the assessee had paid to its employees under the head 'Labour welfare and incentive'. The ITO noticed that the assessee actually paid bonus amounting to Rs. 11,63,653. Out of this, Rs. 7,55,877 was paid to the bonus account but the balance amount was paid under the head 'Labour welfare and incentive'. The ITO also went through the allocable surplus, wherein he found that bonus amounting to Rs. 7,55,877 only could have been paid in view of the amendment by the Payment of Bonus (Amendment) Act, 1977. Therefore, according to him, the assessee-company could not have paid a single penny over and above this amount and the payment of Rs. 4,07,776 paid by the assessee was not deductible in terms of Section 34 of the Payment of Bonus (Amendment) Act, 1977, and Section 36(1)(ii) of the Income-tax Act, 1961 ('the Act'). He, therefore, disallowed this claim.

2. On appeal before the Commissioner (Appeals), the assessee relied upon the decision of the Hon'ble Supreme Court in Hukumchand Jute Mills Ltd. v. Second Industrial Tribunal [1980] 3 Taxman 43 and some decisions of the Tribunal in Indian Cashew Mfg. Co. v. ITO [1982] 1 ITD 516 (Hyd.), ITO v. Arya Vaidya Pharmacy (CBE.) Ltd. [1982] 1 ITD 748 (Mad.) and ITO v. Kasturi Ramesh Pai & Co. [1982] 1 ITD 803 (Bang.).

According to the Commissioner (Appeals) the amount could not be said to have been paid by way of bonus, though the calculation might have been made with reference to the salaries and wages in the same manner as if it was bonus. But there were clear circumstances to show that it was a compulsory payment for the protection, preservation and continuation of the business at the implicit behest of the State Government in consequence with past practice and in harmony with the position obtaining elsewhere in the region. He, therefore, allowed the claim.

The revenue has come up in second appeal before us.

3. We have heard the representatives of the parties at length in this appeal. The main reliance by the representative of the revenue was upon the first proviso inserted by the Payment of Bonus (Amendment) Act, 1976, to Clause (ii) of Section 36(1), according to which, the payment 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, applied, shall not exceed the amount of bonus payable under that Act. On behalf of the assessee, it was argued that this amount was not paid as bonus. Our attention was drawn to the agreement dated 19-9-1979 entered into between the assessee's management and the representatives of the workmen, according to which, a sum equal to 4.42 per cent of the total earnings of the workmen was to be paid to them as welfare expenses/ad hoc payment. Our attention was also drawn by the assessee's representative to two orders of the Tribunal in Arya Vaidya Pharmacy (CBE) Ltd.'s case (supra) and Kasturi Ramesh Pai & Co.'s case (supra), wherein incentive wages in addition to maximum bonus payable under the Payment of Bonus Act and customary bonus payable on Dewali day was held to be allowable.

4. After careful consideration of the facts and circumstances of the case, we are inclined to agree with the contentions of the department raised in this appeal. So far as the nature of the payment is concerned, a perusal of the agreement, on which great reliance was placed by the assessee's representative, would show that the management had sought the interpretation of the Directorate when a dispute had arisen over the quantum of bonus payable to the workers for the relevant accounting year. The union had demanded bonus at the rate of 20 per cent of the wages, whereas the management was agreeable to pay at the rate of only 8.33 per cent as per computation of bonus by the Payment of Bonus Act. This dispute had resulted in agitation by the workers, which hampered the production. After protracted discussion, the issue of bonus was settled as per terms and conditions following thereafter. The argument of the assessee's representative was that the disputed amount was not paid as bonus, but this argument would fall to the ground for simple reason. Can there be a settlement over an issue which was not the subject-matter of reference The dispute between the assessee and its workers related to the payment of bonus. They could agree to any amount by way of settlement of this dispute, but it cannot be said that the amount paid thereunder would be something different from bonus. In fact, there was no dispute about the claim of the workmen. The Tribunal's decisions, on which the assessee has placed reliance, do not appear to have properly considered the effect of the proviso to Section 36(1)(ii). The decision in Kasturi Ramesh Pai & Co.'s case (supra), in fact, refers to the decision of the Hon'ble Supreme Court in Hukumchand Jute Mills Ltd.'s case (supra), which case related to a period earlier than the amendment in the Payment of Bonus Act. The decision in Arya Vaidya Pharmacy (CBE) Ltd.'s case (supra) does not quote any authority in support of the conclusion arrived at but simply purports to suggest the fact that there was a vital difference between the payment by way of bonus under Section 36(1)(ii) and ex gratia payment under Section 37(1) of the Act. In that case, the learned members were of the opinion that what was prohibited by Section 36 can be permitted as allowable under Section 37. Probably, they failed to notice the opening line of Section 37(1) which permits allowability of other expenditure but specifically provides that it should not be an expenditure of the nature described in Sections 30 to 36 of the Act. The intention of the Legislature is quite clear. What is prohibited by Section 36(1)(ii), cannot be permitted under Section 37(1). The point has been considered at full length by the Bench 'A' of the Tribunal at the Calcutta Bench in Molins of India Ltd. v. ITO [1984] 8 ITD 30. After going through all the provisions of the Payment of Bonus Act, the learned members were of the opinion that there was a ceiling on the amount of bonus that could be distributed and the scheme of Payment of Bonus Act left no scope for the assessee's argument that Section 10(1) of the Payment of Bonus Act does not lay down any restriction to the distribution of maximum bonus and that it was left to the assessee to decide the quantum of bonus to be distributed in a particular year. The Tribunal also considered Section 17 of the Payment of Bonus Act, which provides for puja or other customary bonus and held that it did not advance the assessee's case any further. All the authorities on the subject starting from Hukumchand Jute Mills Ltd.'s case (supra), including a decision of the Tribunal at the Calcutta Bench in Shaw Wallace Gelatines Ltd. v. ITO [1983] 3 ITD 177, were duly considered by the Bench. Same is the view taken in the case of Tinplate Co. of India Ltd. [IT Appeal No. 1155 (Cal.) of 1982].

5. In view of the clear cut position of law, as discussed above, we are of the opinion that the order of the Commissioner (Appeals), in the present case, cannot be sustained. We, accordingly, accept the appeal, set aside the order of the Commissioner (Appeals) and restore that of the ITO.1. I am unable to agree with the conclusions arrived at by my learned brother, for the following reasons: 2. The dispute in this case centres around the addition of Rs. 4,07,776, since deleted by the Commissioner (Appeals).

3. The assessee-company carries on business in the manufacture and sale of tea. It had four tea gardens located in Jalpaiguri and Coochbehar districts of North Bengal. The assessee for the accounting year 1978-79 settled the bonus claim of its four tea garden workers through the good offices of the Assistant Labour Commissioner, Jalpaiguri, at 12.75 per cent of the total earnings of the workers, out of which 8.33 per cent was agreed to be paid as bonus and the balance of 4.42 per cent was settled as ad hoc payment by way of a welfare measure to the workers.

On the basis of the agreement reached with the workers' union and the management at the instance of the Assistant Labour Commissioner, a total sum of Rs. 11,63,653 was paid to the employees comprising of Rs. 7,55,877, calculated at Rs. 8.30 per cent on account of bonus and Rs. 4,07,776 calculated at 4.42 per cent of the total earnings of the workers as ad hoc payment being in the nature of welfare expenses.

There is no dispute about the first sum of Rs. 7,55,877 but in regard to the second sum of Rs. 4,07,776, the ITO held that, "since the assessee-company had no allocable surplus, it should have paid bonus to its employees only at the rate of 8.33 per cent, i.e., Rs. 7,55,877.

Instead, the assessee-company made excess payment of bonus to the tune of Rs. 4,07,776 and this is not deductible in terms of Section 34 of the Payment of Bonus (Amendment) Act, 1977 and, therefore, also is not allowable, in view of the provisions of Section 36(1)(ii) of the 1961 Act,". The Commissioner (Appeals) found that, "the amount had to be paid by the appellant company due to the pressure exerted by the union and but for this payment, it may not have been possible for the assessee to continue its business operations". The Commissioner (Appeals) further observed that, "the amount was determined to be payable by the company with the good offices of a State Government Officer which would indicate that the appellant company had no option in the matter. In such cases, it cannot be said that the amount paid by the assessee was by way of bonus". My learned brother has disagreed with this view of the Commissioner (Appeals) by stating in para 4 of his order that, "the dispute between the assessee and its workers related to the payment of bonus. They could agree to any amount by way of settlement of this dispute, but it cannot be said that the amount paid thereunder would be something different from bonus. Therefore, the question that arises is whether the additional amount paid by the assessee to its workers, amounting of Rs. 4,07,776, was in fact bonus or not. It has been held by the Supreme Court in the case of Hukumchand Jute Mills Ltd. (supra) that the Payment of Bonus Act was a complete code but was confined to profit-oriented bonus only. It purports to provide for payment of bonus on the basis of profits or on the basis of production or productivity or for matters connected therein. Section 34 of the Payment of Bonus Act enables the employees and the employer to enter into agreement for grant of bonus under the different formulae, provided the previous approval of the appropriate Government was taken and the employees were not deprived of the minimum bonus payable under the Act. Again, Section 31A of the Payment of Bonus Act, provides for a settlement of the dispute with regard to bonus linked with productivity or production instead of profit sharing bonus. Under Section 10, if the allocable surplus exceeds the amount of minimum bonus, a proportion of the salary/wages of the workmen is liable to be paid as bonus subject to a ceiling of 20 per cent. In computing bonus in terms of Section 10 'salary or wages' of the workers, as defined in Section 2(21) of the Payment of Bonus Act, has to be taken into consideration. The definition given in Section 2(21), excludes bonus whether incentive, production or attendance bonus. All these would suggest that bonus, essentially being profit sharing in nature is unrelated to the remuneration for work and where a sum is paid though called bonus as remuneration for work, it is to be regarded as wages. Now, in the present case, there is no dispute that the management offered its workers bonus at the rate of 8.33 per cent of the earnings of the workers as against 20 per cent demanded by them. The company did not and in fact could not pay more under the existing law and it referred the dispute to the office of the Assistant Labour Commissioner, Jalpaiguri, for conciliation. This is evident from the terms of settlement reached between the parties in dispute as follows: 4. Short recital of the case - The above-mentioned management vide their letter dated sought the intervention of this Directorate, when a dispute arose over the quantum of bonus payable to the workers for the accounting year 1978-79. The union/s demanded 20 per cent bonus, whereas the management was agreeable to pay 8.33 per cent as per the computation formula of the Bonus Act. This dispute resulted in agitation by the workers and thus production was hampered. After protracted discussion, the issue of bonus is settled as per the following terms and conditions.

(a) that in the interest of good labour-management relation and for the sake of uninterrupted production in the garden, the management will pay the workers bonus at the rate of 8.33 per cent on their total earnings during the year as eligible under the Act; (b) that a further sum equivalent to 4.42 per cent of the total earnings of the workmen will be paid as welfare expenses/ad hoc payment; (c) that the above payment in terms of Clauses (a) and (b) will be made on or before 26-2-1979 ; (d) that in view of the above settlement, the workers and union/s assure their full co-operation to the management in running the estate peacefully.

Paragraph No. 5(e) of the form which has been used in recording the agreement reached--has been struck off which implies that the agreement so reached is not in terms of the amended provision of Section 34. The dispute evidently has been settled by a competent authority, who has found that the additional sum payable as per agreement is not bonus but an ad hoc payment in securing an assurance from the workers for 'their full co-operation to the management in running the estate peacefully'.

The question whether ad hoc ex gratia payments in excess of the bonus payable under the Payment of Bonus Act could be allowed as deduction, came up for consideration in the case of Arya Vaidya Pharmacy (CBE.) Ltd. (supra), wherein the Tribunal held that: While bonus is the right of the employee statutorily conferred on him and is not dependent on the sweet will and pleasure of the employer, ad hoc ex gratia payments, like incentive wages, as in this case, which are not specifically prohibited under the Payment of Bonus Act, are paid on no principles, except commercial expediency depended on sweet will and pleasure of the employer....

They cannot, in all cases, be treated as a camouflage for bonus, so as to circumvent the provisions of the Payment of Bonus Act. These are payments deductible not under Section 36(1)(ii) but under Section 37(1)....

In that case, the assessee had paid bonus to the maximum extent permissible under the Payment of Bonus Act, i.e., 20 per cent of the employees' gross earnings. In addition, the assessee agreed to pay an ex gratia payment of 5 per cent as an incentive to increase production and in securing full co-operation from all workmen. The ITO disallowed the incentive bonus as, according to him, the amount paid was in excess of the admissible amount under the Payment of Bonus Act. He, accordingly, disallowed the excess which came to Rs. 36,826. The Commissioner (Appeals) held that the excess amount paid was in fact 'incentive wages', falling outside the provisions of the Payment of Bonus Act and, hence, he allowed it as a deduction. The Tribunal upheld the Commissioner (Appeals)'s order by observing, inter alia, that the amount paid by the assessee was expended wholly for purposes of the assessee's business because it was the price paid to settle the industrial dispute. In the instant case, as we have noted earlier, the assessee in order to purchase peace with its workers had to agree for payment of a sum in excess of the amount payable as bonus. The assessee's learned counsel, at the time of hearing before us, pointed out that in the assessment year 1979-80, the assessee also paid to its workers ad hoc payment at the rate of 7.67 per cent over and above the bonus paid at the rate of 8.33 per cent making a total of 16 per cent of the gross earnings of the workmen. The entire claim of the assessee amounting to Rs. 11,38,483, according to the learned counsel, was allowed in the assessment. The learned counsel furnished in this connection a copy of the ITO's assessment order for 1979-80. The learned counsel also furnished a copy of the agreement reached on 28-9-1978 for payment of an extra sum calculated at the rate of 7.67 per cent of the gross earnings of the assessee's employees over and above the bonus paid at the rate of 8.33 per cent for the accounting year 1977. It follows, therefore, that the assessee-company had to meet the employees' demand for extra bonus at the intervention of the Assistant Labour Commissioner for maintaining industrial peace and harmony during the accounting year 1977-78. There can be no dispute, as has been held by the Commissioner (Appeals) that the assessee's production in the tea gardens would have been hampered severely in case a settlement was not reached on the bonus issue with the employees. The extra amount paid, therefore, was in the business interest of the assessee and was rightly held as allowable in computing the business income of the assessee on grounds of commercial expediency in terms of Section 37(1). Section 36(1)(ii) did not come into play as the extra sum paid to the tune of Rs. 4,07,776 was not bonus. I would, accordingly, uphold the Commissioner (Appeals)'s order and dismiss the departmental appeal.

1. The following question referred under Section 255(4) of the Act, by the members had been assigned by the President for the decision of the Third Member: Whether, on the facts and in the circumstances of the case, the assessee is entitled to the balance payment of Rs. 4,07,776 made by it to its employees over and above the amount of Rs. 7,55,877 allowable under the Payment of Bonus Act, 1965? 2. The assessee is a limited company and it carries on business in manufacture and sale of tea. The assessee-company had four tea gardens located in Jalpaiguri and Coochbehar districts of North Bengal. The dispute arose between the management and its workers on the payment of bonus for the accounting year 1978. The union demanded bonus at the rate of 20 per cent. whereas the management was agreeable to pay the same at the rate of 8.33 per cent as per computation formula of the Payment of Bonus Act. The dispute resulted in agitation by the workers and the production was affected. Consequently, the matter was referred to the Labour Directorate and in a tripartite conference, the bouns was settled on 19-9-1978 when an agreement was signed by the management, the union representative and the Assistant Labour Commissioner, Jalpaiguri, as the Conciliation Officer. It was agreed upon in the agreement that the management would pay the workers bonus at the rate of 8.33 per cent on the total earnings during, the year as eligible under the Act. It was further agreed that a sum equivalent to 4.42 per cent of the total earnings of the workmen will be paid as welfare expenses/ad hoc payment. The total payment of Rs. 11,63,653 was made by the management. A sum of Rs. 7,55,877 was paid as calcuta-ed at the rate of 8.33 per cent and the balance amount of Rs. 4,07,776 was paid at the rate of 4.4 2 per cent. The ITO allowed bonus paid at the rate of 8.33 per cent at Rs. 7.55,877, but the additional amount paid by the assessee at the rate of 4.42 per cent at Rs. 4,07,776 was disallowed by him.

3. The assessee before the Commissioner (Appeals) contended that the additional amount was allowable under Section 36(1)07). The assessee in this connection relied on Hukumchand Jute Mills Ltd's case (supra) and , the decisions of the Tribunal of Hyderabad, Madras and Bangalore Benches in Indian Cashew Mfg. Co.'s case (supra), Arya Vaidya Pharmacy (CBE.) Ltd's case (supra), and Kasturi Ramesh Pai & Co.'s case (supra), respectively. However, the Commissioner (Appeals) had [not] confirmed the disallowance.

4. The department came in appeal before the Tribunal. The learned Judicial Member was of the opinion that the additional amount paid by the assessee at Rs. 4,07,776 neither could be allowed under Section 36(1)00 nor it could be allowed under Section 37(1). The learned Accountant Member after discussing the agreement and the various cases was of the opinion that the amount was allowable under Section 37(1).

5. The question referred by the Division Bench is wide enough to cover up whether the claim of the assessee was allowable at all either under Section 36(1)00 or Section 37(1).

6. The standing counsel, Shri B.K. Bagchi, assisted by Shri B.K. Naha, strongly placed reliance on the order of the Judicial Member and stated that the additional bonus of Rs. 4,07,776 could not be allowed under Section 36(1)00 He in this connection stated that the additional payment even could not be allowed under Section 31A of the Payment of Bonus Act. It was indicated that Section 31A speaks about the contractual bonus, which is payable in relation to the production or productivity. The standing counsel further indicated, relying on India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC), Birla Gwalior (P.) Ltd. v.CIT [1962] 44 ITR 847 (MP) and Molins of India Ltd. v. CIT [1983] 144 ITR 317 (Cal.) at pages 331 & 333, that if the bonus paid by the assessee cannot be allowed under Section 36(1)(ii), the same could not be allowed even under Section 37. Shri Bagchi further stated that even presuming that the additional bonus was allowable under Section 37, it could not be allowed. The payment was made as welfare expenditure and the welfare expenditure cannot be allowed merely on the basis of the agreement. In this connection, he referred to the decision in OTv.Indian Tobacco Co. Ltd. [1978] 114 ITR 182 (Cal.). He further stated that the additional payment was not out of the business necessity but it was paid under force and, therefore, the same could not be allowed as business expenditure. He relied on British Insulated & Helsby Cables Ltd. v. Atherton [1926] 10 TC 155, Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC) and CIT v. Chandulal Keshavlal & Co. [1960] 38 ITR 601 (SC). He stated that one could not go by the nomenclature but the actual nature of the expenditure must be examined. The assessee by an agreement with the labour has not paid bonus and it has been paid as welfare expenses. In the present case, the assessee and the labour have accepted that the payment was to be made as welfare expenses and not as bonus. He relied on National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 62 (SC) at page 77.

7. The assessee's counsel supported the argument on the basis of the order of the Accountant Member and further filed a certificate from the Indian Tea Planters Association, dated 30-8-1984, showing the payment of bonus at the rate of 8.33 per cent and the additional bonus in respect of 15 tea gardens and stated that the additional payment was made following the trade practice and, therefore, the payment was allowable under Section 36(1)(ii). Alternatively, it was allowable under Section 37. The counsel relied on the order of the Calcutta Bench in IT Appeal Nos. 2124, 2125 and 2126 (Cal.) of 1982 and the orders of the other Benches of the Tribunal, as indicated before the Commissioner (Appeals). The counsel also referred to Section 31A and stated that the additional payment was made under Section 31A of the Payment of Bonus Act, 1965 and, therefore, it was allowable under Section 36(1)(ii) of the Income-tax Act.

8. The controversy about the allowability of the additional bonus of Rs. 4,07,776 paid at the rate of 4.42 per cent had arisen in view of the first proviso to Section 36(1)(ii). It would be relevant to quote Section 36(1)(ii) as under: (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: 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: Provided further that the amount of the bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to-- (b) the profits of the business or profession for the previous year in question ; and If the provisions of Section 36(1)(ii) are read without proviso, it is clear that the bonus paid to an employee is allowable, provided it is not paid by way of profit or dividend. The first proviso restricts the payment to the extent payable under the Payment of Bonus Act. However, the second proviso enlarges the scope of payment of bonus provided the bonus paid by the assessee is outside the purview of the Payment of Bonus Act. Therefore, it is necessary to determine the nature of the bonus paid by the assessee to its employees or its workmen.

9. The facts of both the learned members are the same. There was a dispute over the payment of bonus between the workmen and the management and, consequently, the matter was referred to the Labour Directorate. It was decided ultimately, on the basis of a tripartite agreement, dated 19-9-1978, that the workmen will receive payment at the rate of 8.33 per cent and they would further get a sum equivalent to 4.42 per cent of the total earnings as welfare/ad hoc payment. The dispute between the labour and the management was in respect of the payment of bonus. It could not be settled amicably and ultimately the matter was referred to the Labour Directorate who decided that in addition to the payment of 8.33 per cent, the labour should be paid additional amount at the rate of 4.42 per cent. Therefore, the total payment made by the assessee was in the nature of bonus, even though the additional amount was paid as welfare/ ad hoc payment.

10. Having this fact in mind that the assessee had paid the additional amount of bonus of Rs. 4,07,776 during the year, it is to be considered whether this payment was allowable either under Section 36(1)(ii) or under Section 37(1). The first proviso to Section 36(1)07) restricts the payment of bonus as payable under the Payment of Bonus Act. If the provisions of the Payment of Bonus Act along with the title of the Act are read, it is clear that the Payment of Bonus Act envisages only three types of bonus, viz.: (c) contractual bonus linked with production or productivity (section 31A).

The contractual bonus linked with production or productivity was brought on the statute by the Payment of Bonus (Amendment) Ordinance, 1975. The title of the Act was also, accordingly, changed by the Payment of Bonus (Amendment) Act, 1976. The title before the amendment was running as follows: An Act to provide for the payment of bonus to persons employed in certain establishments and for matters connected therewith.

An Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.

Therefore, if all the provisions and the title of the Act are considered, the Payment of Bonus Act is related only to three types of bonus which have been indicated above. This conclusion is well supported by the decision of the Supreme Court in Sanghvi Jeevraj Ghewar Chand v. Secretary, Madras Chillies, Grains & Kirana Merchants Workers Union AIRMumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455, Hukumchand Jute Mills Ltd.'s case (supra), Baidyanath Ayurveda Bhawan Mazdoor Union v. Management of Shri Baidyanath Ayurveda Bhawan (P.) Ltd. AIR 1984 SC 457. It would be relevant to quote para 9 of Hukumchand Jute Mills Ltd.'s case (supra) as under: The clear light that we glean from the new long title is contrary to the intent of Shri Pai's argument. Specifically, the new long title purports to provide for the payment of bonus 'on the basis of profits or on the basis of production or productivity and for matters connected therewith....

The bonus is paid in different forms and it is known differently in the commercial field. Broadly, the bonus may be classified as under: 11. Other types of bonus paid by any assessee, therefore, may not be bonus within the meaning of the Payment of Bonus Act. The assessee had pleaded that this payment should be considered as payment under Section 31 A. It has been indicated earlier that the contractual bonus within the meaning of Section 31A is allowable even up to 20 per cent. But the amount payable under Section 31A must be linked up with production or productivity. Without going to the dictionary meaning, the popular meaning of production or productivity is considered. When the bonus is based upon graded production, it is known as production bonus whereas the productivity bonus means overall increase in the production and quality. The payment has not been linked up either with the graded production or with the overall increase in production of the assessee.

Therefore, the payment made by the assessee could not be considered as payment under Section 31 A.12. It would be relevant before proceeding further to consider the allowability of the additional amount as customary or puja bonus, though the same had been brought under the purview of the Payment of Bonus Act under Section 17. But its consideration in the Payment of Bonus Act is very limited. If the payment of customary or puja bonus, is less than the ceiling prescribed for the payment of bonus, it is to be taken into consideration. The legislation is silent upon the payment of customary or puja bonus in excess of the ceiling provided under the Payment of Bonus Act. Therefore, it is clear that customary or puja bonus which is paid in excess of ceiling is outside the purview of the Payment of Bonus Act. This conclusion is also supported by the decision of the Supreme Court in Hukumchand Jute Mills Ltd.'s case (supra).

13. Now, the point is that the additional payment was not made by the assessee either by way of bonus based upon profit of as a contractual bonus. It may be customary, festive or any other kind of bonus. It appears that it is in the nature of festive or customary bonus or more broadly it can be described as traditional bonus. The traditional bonus and/or customary bonus is the bonus which is paid irrespective of the fact whether the concern has earned profit or not. Such bonus is governed by the second proviso to Section 36(1)(ii). Now, the condition for the allowance of the payment of bonus under the second proviso to Section 36(1)(ii) is that such payment is reasonable with reference to the payment to an employee and the condition of his service, the profit of the business or profession for the previous year in question and the general practice in similar business or profession. It has been indicated that in the present case, the payment has been made on the basis of a tripartite agreement. The settlement was arrived at in the meeting which was represented by the management, labour and the State Labour Directorate. Therefore, so far as the first and second conditions are concerned, they are automatically fulfilled when by an agreement it has been decided that the labour is to get payment. The third is the general practice. The general practice in trade and industry should not be very old like a custom in the society. The trade practice is the practice adopted by the commercial world. The practice differs from (i) locality to locality, (ii) trade to trade, (iii) business to business, and (iv) State to State. The assessee has filed a letter from the Indian Tea Planters Association, indicating that about 15 tea gardens have paid the additional bonus during the year under appeal. The assessee itself was paying bonus in past and it has continued the same practice in the year under consideration. Therefore, the assessee has fulfilled the third condition which was required for the allowance of the additional bonus which was outside the purview of the first proviso to Section 36(1)(ii) and, hence, the additional payment made by the assessee is allowable under Section. 36(1)(ii).

14. It would be relevant to mention that even otherwise the additional payment made by the assessee is allowable under Section 37. The assessee has relied upon several decisions of the Tribunal and those decisions had been considered by the Bombay Bench in ITO v. National Organic Chemical Industries Ltd. [1984] 10 ITD 398. The learned Tribunal has also referred to the decision of the Calcutta Bench in Shaw Wallace Gelatines Ltd.'s case (supra). The assessee has also relied on the order of the Calcutta Tribunal in IT Appeal Nos. 2124 to 2126 (Cal.) of 1982. The decision so cited by the assessee and referred to hereinbefore has accepted the claim of the assessee that the additional payment was allowable even under Section 37. The view expressed by the learned Tribunal of the various Benches is in line with the conclusion which is arrived at hereinafter.

15. Section 36(1)(ii), as discussed above, speaks of the bonus payable under the Payment of Bonus Act and the other bonus which is payable in terms of the second proviso. The bar for the consideration of the payment of bonus under Section 37 is to the extent it is allowable under the Payment of Bonus Act. It has been indicated that only three kinds of bonus are payable under the Payment of Bonus Act. Therefore, the assessee cannot claim those payments as allowable expenditure under Section 37, but if the payments are other than three types of payment, the assessee has got right to claim under Section 37 if such claim has not been allowed under second proviso to Section 36(1)(ii) and the assessee fulfils the condition that the payment was made wholly and exclusively for the purposes of the business or profession. The standing counsel, supporting his argument on some decisions, has argued that the payment was not made out of business necessity and it was made under force and, therefore, the same cannot be considered under Section 37. The words 'business necessity' and 'force' cannot be separated if the traditional activities of the workmen and the attitude of the employers in India are taken into consideration. The force begets necessity and necessity necessitates force. Therefore, when the management was not inclined to pay off the demand of the labour, the labour applied force and out of the force business necessity arose for the settlement and, accordingly, the payment was made. Therefore, the payment was made out of the business necessity and to keep the business running smoothly. Under the above circumstances, the payment was even allowable under Section 37. Considering the above conclusions, the question referred under Section 255(4) is answered as follows: On the facts and in the circumstances of the case, the assessee was entitled to the balance payment of Rs. 4,07,776 made by it to its employees over and above the amount of Rs. 7,55,877 allowable under the Payment of Bonus Act, 1965 The matter is referred back to the original Bench for final decision in the light of the answer.


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