ORDER This appeal under section 260A of the Income Tax Act has been filed against the impugned order of the Income Tax Appellate Tribunal dated 18-12-2000 vide Annexure 3 to the appeal.
The main point pressed by the learned counsel for the department is that the amount of Rs. 9,82,426 was wrongly allowed by the Tribunal under section 36(c) and (ii) or section 37(1) of the Income Tax Act. This question has been discussed in paragraph 5 of the impugned order of the Tribunal. It appears that in the year 1978 the workers of the assessee went on strike and the factory was closed for almost a month. When finally the Chief Minister of Uttar Pradesh intervened, an agreement was reached, whereby certain amount was to be paid over and above the statutory bonus. Thereafter every year the workmen demanded twenty per cent bonus, which was the maximum limit under the provisions of Payment of Bonus Act, 1965. Thereafter, also the assessee was paying to the workmen bonus above the amount legally payable under Payment of Bonus Act, 1965.
2. It may be mentioned here that under the Payment of Bonus Act, the bonus (which deals with profit bonus) is payable to the employees as a matter of right and it is not sweet will of the employer to pay it or not. The scheme of the Payment of Bonus Act for calculating bonus payable to the workmen is that we have to start from the profit of the previous year as mentioned in the profit and loss account of the company. We have then to add certain amounts and subtract certain amounts which are mentioned in the Payment of Bonus Act. We then come to the available surplus. Sixty per cent of the available surplus is the allocable surplus payable to the workmen. The idea of giving bonus is that since the workmen have contributed to the prosperity of the concern, they are entitled to share in the profit of the concern. There may be several cases like the present where the concern pays higher bonus than what it is legally bound to pay under the Payment of Bonus Act and this higher amount is often paid to keep harmony and good industrial relationship so as to facilitate the smooth business. In the present case, as mentioned in para 8 of the order of Commissioner (Appeals), the payment above the legally due amount under the Payment of Bonus Act was made to the workmen because they had threatened to stop the work and they resorted to mass hunger strike, which continued for two days.
2. It may be mentioned here that under the Payment of Bonus Act, the bonus (which deals with profit bonus) is payable to the employees as a matter of right and it is not sweet will of the employer to pay it or not. The scheme of the Payment of Bonus Act for calculating bonus payable to the workmen is that we have to start from the profit of the previous year as mentioned in the profit and loss account of the company. We have then to add certain amounts and subtract certain amounts which are mentioned in the Payment of Bonus Act. We then come to the available surplus. Sixty per cent of the available surplus is the allocable surplus payable to the workmen. The idea of giving bonus is that since the workmen have contributed to the prosperity of the concern, they are entitled to share in the profit of the concern. There may be several cases like the present where the concern pays higher bonus than what it is legally bound to pay under the Payment of Bonus Act and this higher amount is often paid to keep harmony and good industrial relationship so as to facilitate the smooth business. In the present case, as mentioned in para 8 of the order of Commissioner (Appeals), the payment above the legally due amount under the Payment of Bonus Act was made to the workmen because they had threatened to stop the work and they resorted to mass hunger strike, which continued for two days.
3. In CIT v. Shaw Wallace & Co. Ltd. (1991) 190 ITR 455 (Cal) similar facts, as in the present case were involved. The Calcutta High Court held that the payment made above the amount due under the Act to keep industrial peace was allowable as a business expenditure. We are in respectful agreement with the aforesaid decision of Calcutta High Court.
3. In CIT v. Shaw Wallace & Co. Ltd. (1991) 190 ITR 455 (Cal) similar facts, as in the present case were involved. The Calcutta High Court held that the payment made above the amount due under the Act to keep industrial peace was allowable as a business expenditure. We are in respectful agreement with the aforesaid decision of Calcutta High Court.
4. Learned counsel for the appellant then submits that the Tribunal was not justified in deleting addition of 18 per cent under section 40A(12) of the Income Tax Act. The present appeal relates to the assessment year 1986-87. Whereas section 40A(12) was inserted in the Income Tax Act by the Finance Act, 1985 with effect from 1-4-1986. Hence, the aforesaid provision will only relate to the proceedings for the assessment year 1987-88 and onwards and not to the assessment year 1986-87 with which we are concerned.
4. Learned counsel for the appellant then submits that the Tribunal was not justified in deleting addition of 18 per cent under section 40A(12) of the Income Tax Act. The present appeal relates to the assessment year 1986-87. Whereas section 40A(12) was inserted in the Income Tax Act by the Finance Act, 1985 with effect from 1-4-1986. Hence, the aforesaid provision will only relate to the proceedings for the assessment year 1987-88 and onwards and not to the assessment year 1986-87 with which we are concerned.
5. Learned counsel for the department then submitted that the Tribunal was not justified in upholding the deletion of addition of Rs. 16,350 made under section 40A(9) of the Act by the assessing authority which was paid as subsidy to certain clubs, of which the staff and workers of the assessee were members. In our opinion section 40A(9) of the Act has no application to the facts and circumstances of the case as payment was not made for formation or setting up of any trust, nor as contribution to the same. The learned Tribunal has relied upon the decision in Dy. CIT v. Chloride Industries Ltd. (2000) 111 Taxman 81 (Cal) (Mag) and Amrit Banaspati Co. Ltd. v. Dy. CIT (2000) 111 Taxman 186 (Del) (Mag). We respectfully agree with the aforesaid decisions.
5. Learned counsel for the department then submitted that the Tribunal was not justified in upholding the deletion of addition of Rs. 16,350 made under section 40A(9) of the Act by the assessing authority which was paid as subsidy to certain clubs, of which the staff and workers of the assessee were members. In our opinion section 40A(9) of the Act has no application to the facts and circumstances of the case as payment was not made for formation or setting up of any trust, nor as contribution to the same. The learned Tribunal has relied upon the decision in Dy. CIT v. Chloride Industries Ltd. (2000) 111 Taxman 81 (Cal) (Mag) and Amrit Banaspati Co. Ltd. v. Dy. CIT (2000) 111 Taxman 186 (Del) (Mag). We respectfully agree with the aforesaid decisions.
6. It may be mentioned here that even if the amount is not legally due yet it can be allowed as a business expenditure tinder section 37 of the Act, if it is made for commercial expediency. A businessman has to incur many expenditures which are not due under any legal obligation but to facilitate the business and for commercial expediency vide Shahzadanand v. CIT 1977 UPTC 483 (SC). Hence, these expenditures made for commercial expediency even without any legal obligation are allowable as business expenditures under section 37.
6. It may be mentioned here that even if the amount is not legally due yet it can be allowed as a business expenditure tinder section 37 of the Act, if it is made for commercial expediency. A businessman has to incur many expenditures which are not due under any legal obligation but to facilitate the business and for commercial expediency vide Shahzadanand v. CIT 1977 UPTC 483 (SC). Hence, these expenditures made for commercial expediency even without any legal obligation are allowable as business expenditures under section 37.
7. Thus there is no force in the appeal and it is accordingly dismissed.
7. Thus there is no force in the appeal and it is accordingly dismissed.