Back
1991 Supreme(Cal) 155
High Court Of Calcutta
A.K. Sengupta, Shyamal Kumar Sen, JJ.
Commissioner Of Income-Tax : Appellant
Versus
Rahimia Lands And Tea Co(P) Ltd. : Respondent
Income-tax Reference 6 Of 1990
Decided On : March 22,1991
J.P. Khaitan, Sunil Mukherji
Ex gratia payments made to employees in addition to statutory bonus are allowable as a deduction under Section 37 of the Income-tax Act, 1961.
Headnote:
INCOME TAX - Payment of ex gratia to employees - Whether ex gratia payment made by assessee to its employees represented bonus paid under Payment of Bonus Act, 1965 - Applicability of Section 34 of the Payment of Bonus Act, 1965 - Allowability of ex gratia payment as deduction under Section 37 of Income-tax Act, 1961.
Fact of the Case:
The assessee, a tea grower and manufacturer, made ex gratia payments to its employees under memoranda of settlement in the assessment years 1981-82 and 1984-85. The Income-tax Officer disallowed the payments as inadmissible expenditure, holding that they were in the nature of bonus and not allowable under the Payment of Bonus Act, 1965. The Commissioner of Income-tax (Appeals) deleted the impugned additions, and the Tribunal held that the payments were ex gratia and allowable under Section 37 of the Income-tax Act, 1961.
Finding of the Court:
The court held that the payments were not bonus but additional wages or emoluments, and were allowable as a deduction under Section 37 of the Income-tax Act, 1961.
Issues: 1. Whether the ex gratia payment made by the assessee to its employees represented bonus paid under the Payment of Bonus Act, 1965? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Section 34 of the Payment of Bonus Act, 1965, would not apply to the memorandum of settlement dated 3rd November, 1980, and 24th September, 1983, under which ex gratia payment was made by the assessee-company to its employees? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the payment made by the assessee to its workmen as per memorandum of settlement Was ex gratia payment, not coming under the purview of the Payment of Bonus Act, 1965, and would be allowable as a deduction under Section 37 of the Income-tax Act, 1961?
Ratio Decidendi: The court interpreted the memoranda of settlement and found that the payments were made in addition to the statutory bonus and not in the nature of profit-sharing bonus. The court held that the Payment of Bonus Act does not prevent the payment of additional wages to the employees, and that the payments in question were ex gratia and not bonus.
Final Decision: The court answered all the questions in the reference in the affirmative and in favor of the assessee.
Ajit K. Sengupta, J.
1. IN this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1981-82 and 1984-85, the following questions of law have been referred to this court :
"1. Whether the Tribunal was justified in holding that the ex gratia payment made by the assessee to its employees did not represent bonus paid under the Payment of Bonus Act, 1965 ? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Section 34 of the Payment of Bonus Act, 1965, would not apply to the memorandum of settlement dated 3rd November, 1980, and 24th September, 1983, under which ex gratia payment was made by the assessee-company to its employees ? Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the payment made by the assessee to its workmen as per memorandum of settlement Was ex gratia payment, not coming under the purview of the Payment of Bonus Act, 1965, and would be allowable as a deduction under Section 37 of the Income-tax Act, 1961?" Shortly stated, the facts are that the assessee is a grower and manufacturer of tea. IN the assessment year 1981-82, the Income-tax Officer disallowed the amount of Rs. 51,778 observing as under : "Ex gratia : The assessee had claimed a sum of Rs. 51,778 as payment towards ex gratia in addition to payment of bonus at 8.33 per cent. Obviously, the payment of ex gratia is in the nature of bonus and should be considered together. IN this year, the assessee had incurred losses and, as such, no allocable surplus was available to the assessee. IN view of this, the payment of ex gratia to the extent of Rs. 51,778 was in excess of bonus allowable under the relevant Bonus Act. Therefore, I am inclined to disallow this amount in the assessment. . . . Rs. 51,778."
For the assessment year 1984-85, the Income-tax Officer disallowed the amount of Rs. 35,000 which the assessee claimed as ex gratia payment, as inadmissible expenditure.
2. ON appeal, the Commissioner of Income-tax (Appeals) deleted the impugned additions.
In the Revenue's appeal, the Tribunal held that the memoranda of settlement dated November 3, 1980, and September 24, 1983, provided for payment of ex gratia only and that what was paid according to them was not bonus and that Section 34 of the Payment of Bonus Act, 1965, was not applicable to the said memoranda. The Tribunal further held that the said ex gratia payments were allowable under Section 37.
3. THE contention of the Revenue is that the amounts paid are not additional emoluments but bonus.
4. IT is, therefore, necessary for us to consider the settlements which have been arrived at to find out whether the payment is additional wages or in fact bonus. The first agreement relevant for the assessment year 1981-82 is as follows :
"Terms of settlement. In view of the assurance given by the workmen that they will maintain harmonious industrial relations with the management and to promote industrial peace for smooth working at the tea estate, it has been agreed between the management and the workers that the workers shall be paid an ex gratia at 8.33 per cent worked out on the basis of wages earned by the workers during the calendar year 1979. Payment shall be made in the calendar year 1980 on or before November 30, 1980. Workers have also assured the management that they will try to improve the production in the tea estate."
The agreement for the assessment year 1984-85 is as follows : "With a view to bringing about an early and peaceful settlement of the issue of bonus in tea plantations, payable in 1983 for the accounting year 1982-83, the parties to the dispute held several rounds of bipartite discussions at Jalpaiguri and, thereafter, on September 22 and 23, 1983, in Calcutta. The representatives of the managements were not in a position to pay bonus at the rate demanded by the representatives of the plantation workers' unions, and pleaded their inability
