COMMISSIONER OF INCOME TAX Vs. BHAVANI MILLS LIMITED

JUDGEMENT

(1.) AT the instance of the Revenue, the Tribunal has stated a case and referred the following question of law under s. 256(1) of the IT Act, 1961, (hereinafter referred to as the Act'), for the asst. yr. 1980-81 :

(2.) THE assessee is a company engaged in manufacturing cotton yarn. During the previous year relevant to the asst. yr. 1980-81, the assessee paid a sum of Rs. 1,32,263 as bonus in excess of the amount prescribed under the payment of Bonus Act and claimed that the said sum of Rs. 1,32,263 was paid as incentive bonus as per the industrial settlement arrived at between the management and employees dt. 15th October, 1979. THE ITO, however, held that the amount paid was only bonus and hence, it has to be allowed only subject to the ceiling limit prescribed under the provisions of s. 36(1)(ii) of the Act. THE CIT (A), however, in the appeal preferred by the assessee held that the employees have an enforceable right by virtue of the settlement arrived at under the Industrial Disputes Act against the assessee for the amount agreed to be paid and the amount was paid for business consideration and hence it was allowable under s. 37 of the Act. THE Tribunal, on appeal, held that the amount was paid only as incentive bonus and not profit-sharing bonus and hence, the CIT (A) was right in allowing the deduction under s. 37 of the Act. It is this order which is the subject-matter of this tax case reference.