COMMISSIONER OF INCOME TAX Vs. INTERNATIONAL INSTURMENTS LIMITED

JUDGEMENT

(1.) UNDER the provisions of the Income-tax Act, 1961 ("the Act for short), the following question has been referred for out consideration :

(2.) THE relevant assessment year is 1977-78. THE previous year ending is on December 31, 1976. In May, 1977, at a meeting of the directors of the assessee-company, it was resolved to make certain payments to be workmen by way of bonus. This was found to be in excess of the amount payable under section 31A of the Payment of Bonus Act, 1965, and therefore, this excess amount was disallowed when it was claimed as a deduction by the assessee.

(3.) LEARNED counsel for the assessee, however, contended that the provisions of section 36(1)(ii) of the Income-tax Act, 1961, and its second proviso are not exhaustive and an assessee can claim deduction under section 37 of the said Act also. It was also contended that, under the second proviso to section to section 36(1)(ii) of the Income-tax Act, 1961, the Revenue can examine the reasonableness of the bonus paid whenever the said bonus is now covered by the first proviso to the said section. Various decision were cited in support of the proposition that the bar imposed by the first proviso to section 36(1)(ii) governs the contractual payments specifically referred to under section 31A of the Payment of Bonus Act, 1965. But there are various kinds of bonus which are not covered by the said proviso such as incentive bonus, attendance bonus, festival bonus, etc. The only bonus covered by section 31A of the Payment of Bonus Act, 1965, is the bonus which is linked with production as is clear from the very section and the preamble to the said Act. Even otherwise, it was contended that the second proviso to section 36(1)(ii) of the Income-tax Act, 1961, preserved the rights of the assessee to have a reasonable bonus deducted.