COMMISSIONER OF INCOME TAX Vs. MOHAMED ISMAIL D

JUDGEMENT

(1.) IN accordance with the direction given by this Court, dt. 23rd March, 1983, the Tribunal referred the following two questions for the opinion of this Court under s. 256(2) of the IT Act, 1961 hereinafter referred to as the 'Act' :

(2.) THE assessee is an individual carrying on business in tanning hides and skins. In the accounts of the previous year ended 31st March, 1978, corresponding to the asst. yr. 1978-79, the assessee had paid a sum of Rs. 20,900 to the workmen with the narration that it was bonus paid to them and debited to the wages account. THE ITO noted that this bonus was in excess of 20 per cent. of the salary and assuming that the payment of Bonus Act did not authorise payment of bonus in excess of 20 per cent. of the salary, he disallowed a sum of Rs. 16,450 under s. 36(1)(ii) of the Act. On appeal, the CIT(A) found that the assessee was a Muslim and there was ample evidence of a custom common to Muslim-owned businesses to pay small salaries and relatively large amounts as bonus. He was of the view that such customary bonus did not fall within the provisions of payment of Bonus Act, as held by the Supreme Court in the case of Hukumchand Jute Mills Ltd. vs. Second Industrial Tribunal and he accordingly deleted the disallowance. Aggrieved, the Revenue filed an appeal before the Tribunal. THE assessee filed a statement before the Tribunal showing that the total salary paid for the assessment year was Rs. 22,250 and the bonus Rs. 20,950 which was similar to the payment of salary of Rs. 24,760 and bonus of Rs. 24,800 for the asst. yr. 1977-78 and salary of Rs. 18,249 and bonus of Rs. 15,600 for the asst. yr. 1976-77. THE Tribunal, therefore, found that the bonus paid was equivalent to the salary paid. According to the Tribunal the assessee treated the bonus paid as part of the remuneration and not as bonus out of the profits and that was the practice even in the past. THE Tribunal also found that such a mode of payment of remuneration in the form of bonus was customary to the trade and therefore the ceiling prescribed under s. 36(1)(ii) of the Act was not attracted, since the payment itself was only a remuneration and not bonus at all. THErefore, the Tribunal came to the conclusion that the disallowance as deleted by the CIT is in order.

(3.) AGAIN, the Kerala High Court in CIT vs. Alikunju, M. A. Nazir, Cashew Industries , held, that to say that the second proviso to cl. (ii) of s. 36(1) of the Act has no application in respect of employees covered under the Bonus Act, and that bonus or commission paid to them in excess of, or otherwise than what is statutorily required (although reasonable when considered with reference to cls. (a) to (c) of the second proviso) is not deductible under s. 36, is to put an artificial construction upon a beneficial provision.