COMMISSIONER OF INCOME TAX Vs. RAVINDRANATHAN NAIR K

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following two questions of law for the decision of this court :

(2.) THE respondent is an assessee to income-tax. We are concerned with the assessment year 1976-77. THE accounting period ended on September 30, 1975. THE respondent is also an assessee to sales tax. He claimed deduction of purchase tax payable by him under the Kerala General Sales Tax Act in respect of kernels purchased by him for the purpose of export in the course of export business, in the sum of Rs. 3,39,133. This plea was disallowed by the Income-tax Officer. THE Appellate Tribunal, following the decision of this court in Hindustan Cashew Products (P.) Ltd. v. STO [1971] 28 STC 730, held that the purchase of kernels by the respondent/ assessee cannot be said to be one in the course of export and so the assessee was justified in making the provision for payment of purchase tax. It can be considered to be a legitimate business expenditure. THE order in that behalf passed by the Commissioner of Income-tax (Appeals) was upheld. Similarly, the Income-tax Officer also made disallowance of Rs. 23,450 out of the bonus paid on the ground that the payment is in excess of 20% of the salary of the employees. In appeal, the Commissioner of Income-tax (Appeals) held that the payment was made as a result of the tripartite agreement among the workers, the assessee and the Labour-Commissioner and that the bonus paid was a customary festival bonus governed by an ad hoc agreement and the provisions of the Payment of Bonus Act will not apply. THE Commissioner of Income-tax (Appeals) as well as the Appellate Tribunal held that what was paid by the assessee was a customary bonus on the basis of a settlement and so the first proviso to Section 36(1)(ii) of the Act will not apply. From a commercial point of view, the payment of bonus was considered to be expedient and cannot be said to be unreasonable. So stating, the Appellate Tribunal confirmed the action of the Commissioner of Income-tax (Appeals) in deleting the disallowance in that behalf. THEreafter, at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the questions of law, formulated hereinabove, for the decision of this court.

(3.) IN the light of the above Bench decisions, we decline to answer question No. 2 referred to us by the Appellate Tribunal. We are of the view that, even if the payment of bonus is customary, it should stand the scrutiny, as envisaged by the second proviso to Section 36(1)(ii) of the INcome-tax Act. The Appellate Tribunal should consider whether all the three conditions prescribed by Clauses (a) to (c) of the second proviso to Section 36(1)(ii) of the Act are satisfied as held by the aforesaid Bench decisions of this court. While we decline to answer question No. 2, we direct the INcome-tax Appellate Tribunal to restore the appeal to file, for this limited purpose, and adjudicate on the question afresh in the light of the observations contained hereinabove.