Production bonus paid to workmen is not covered under the Payment of Bonus Act, 1965, and is allowable as a deduction under Section 37 of the Income-tax Act.

AJIT K. SENGUPTA, J.

( 1 ) AT the instance of the Revenue, the following two questions of law have been referred to this court under Section 256 (1) of the Income-tax Act, 1961, for the assessment year 1981-82 :" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment of annual special incentive, of Rs. 1,17,714 was production bonus and does not come under the purview of the Payment of Bonus Act, 1965 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the payment of monthly incentive bonus amounting to Rs. 5,56,963 was production bonus and does not come under the purview of the Payment of Bonus Act, 1965 ? "

( 2 ) SHORTLY stated, the facts are that, for the assessment year under consideration, the assessee-company had allocable surplus of Rs. 3,35,766 within the meaning of the Payment of Bonus Act, 1965. Even then, the assessee paid profit-sharing bonus to the extent of Rs. 3,37,000. In addition to such profit-sharing bonus, the assessee-company paid monthly incentive bonus of Rs. 5,66,963 and special incentive bonus of Rs. 1,17,314. The Income-tax Officer disallowed Rs. 1,254 out of the profit sharing bonus of Rs. 3,37,000 as it was in excess of 8. 33% of the salary and wages and the entire monthly incentive bonus and special incentive bonus. On appeal, the Commissioner of Income-tax (Appeals) held that the monthly incentive bonus was " nothing but incentive wages" and, therefore, allowed this amount of monthly incentive bonus of Rs. 5,56,963. He, however, declined to accept the assessee's claim in respect of the special incentive bonus of Rs. 1,17,314. This disallowance was contested by the assessee in an appeal to the Tribunal. The Department also preferred an appeal against the finding relating to the monthly incentive bonus.

( 3 ) THE Tribunal held that the annual special incentive bonus and monthly incentive bonus are production bonuses and as such additional or further emoluments which do not come under the provisions of the Payment of Bonus Act, 1965, and are allowable deductions. As such, it upheld the finding of the Commissioner of Income-tax (Appeals) relating to the monthly incentive bonus, but it deleted the said addition of Rs. 1,17,314.

( 4 ) AT the hearing before us, the learned advocate for the Revenue has contended that the assessee is not entitled to the deductions claimed inasmuch as such bonus is not payable under the Payment of Bonus Act, 1965, as amended. It is also his contention that, if any particular type of bonus cannot be paid because of the prohibition under the Payment of Bonus Act, 1965, the employer, by making such payment, cannot claim deduction for such bonus. According to him, this will be contrary to public policy.

( 5 ) ON the other hand, the contention of Dr. Debi Prasad Pal, the learned advocate for the assessee, is that bonus which has been paid in this case is incentive bonus linked to production and this has been paid not in lieu of the profit-sharing bonus but in addition to the aforesaid bonus. It is his contention that there is no bar against allowing deduction when such bonus in fact has been paid in terms of the agreement with the employees in addition to the profit-sharing bonus. He has drawn our attention to an unreported decision of a Division Bench of this court in the case of CIT v. Shaw Wallace Gelatines Ltd. (Income-tax Reference No. 35 of 1982) where judgment was delivered on August 22, 1989. It has been held in that case that the customary bonus in addition to the bonus payable under the Payment of Bonus Act, 1965, will be allowable as a deduction. Dr. Pal, therefore, contended that, if bonus paid beyond the statutory limit is allowable as deduction, there is no reason why bonus paid in addition to the profit-sharing bonus should not be allowed as a deduction either under Section 36 (1) (ii) or Section 37 of the Act. He has drawn our attenti

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