COMMISSIONER OF INCOME TAX Vs. LONAPPAN C D

JUDGEMENT

(1.) This appeal by special leave is preferred against the judgment of the High Court of Kerala at Ernakulam in Income-tax Reference No. 22 of 1961.

(2.) C. D. Lonappan, the respondent, was carrying on business in groceries, rice, paddy, etc., under the name and style of C.L.V. Brothers at Mattancherry. During the accounting year ending with March 31, 1956, the respondent had 34 employees. He paid them a total annual salary of Rs. 16,000. As he had made a profit of Rs. 31,812 he paid them a bonus of Rs. 10,125. During the assessment year 1956-57 he claimed a deduction of the said amount from his taxable income. The Income-tax Officer found in most of the cases the payment of bonus was far in excess of three months salary and on that ground disallowed a sum of Rs. 5,936. The assessee preferred an appeal to the Appellate Assistant Commissioner, who rejected the appeal on the following grounds : (i) the actual cash payments to the various employees were much less than the salary and bonus found credited in their accounts; and (ii) the vouchers in annexure "C" were unsatisfactory and unacceptable. On further appeal, the Income-tax Appellate Tribunal, Madras Bench "B", took the same view. It gave, inter alia, the following reasons for its conclusion : (i) the bonus claimed had no relation to the salary or length of service; (ii) the bonus disbursement was only at the end of the year; (iii) the genuineness of the payment was doubtful; and (iv) there were over-writing and erasures in the ledger account of P. V. Lonappan. As the Tribunal refused to make a reference to the High Court, at the instance of the assessee, the High Court directed the Tribunal to state a case and refer to it the following question of law :

(3.) Thereupon, the Tribunal drew up a statement of case and referred the said question to the High Court. The High Court answered the question in the affirmative. Hence the present appeal.