CIT Vs. CHAMPARAN SUGAR CO. LTD

JUDGEMENT

(1.) THE Income Tax Appellate Tribunal, Allahabad has referred the following question of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court: 'Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the payment of Rs. 30,396 under the head 'Bonus to senior members of employees who are not entitled to receive the bonus under the provisions of Payment of Bonus Act, 1965' is an admissible expenditure under the Income Tax Act?'

(2.) BRIEFLY stated the facts giving rise to the present case are as follows : The reference relates to the assessment year 1981 -82. The assessee -respondent is a limited company and derives income from the manufacture and sale of sugar. The assessing officer disallowed a sum of Rs.30,396 as bonus paid to the senior members of the staff in view of the provisions of section 36(1)(ii) of the Act. The disallowance was confirmed by the CIT(A), Kanpur. The Tribunal has set aside the disallowance of the above sum on the finding that the payment of bonus of Rs. 30,396 cannot be regarded as being more than what was reasonably required to be paid.

(3.) THE question whether the amount paid as bonus was a reasonable amount or not had to be determined with reference to the three factors, as pointed by the Supreme Court in the case of Shahzada Nand and Sons (supra). The relevant paragraph is quoted below 'Turning to the provisions of section 36, sub -section (1), clause (ii), we find that the proviso to that clause lays down three factors for the purpose of determining the reasonableness of the commission paid to an employee. The question whether the amount of the commission is a reasonable amount or not has to be determined with reference to these three factors. Sometimes these three factors are loosely described as conditions but they are not really conditions on the fulfilment of which alone the amount of commission paid to an employee can be regarded as reasonable. They are merely factors to be taken into account by the revenue authorities in determining the reasonableness of the amount of commission.'