Commissioner of Income Tax vs Khan Pal Chowdhury and Co.

Ajit K. Sengupta, J.—In this reference u/s 256(2) of the income tax Act, 1961 (''the Act'') for the assessment year 1977-78 the following question of law has been referred to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the disallowance of Rs. 75,877 paid by the assessee to its permanent employees ?

Shortly stated, the facts are that for the assessment year under consideration, the assessee-company paid special allowance to its employees on the basis of about five months'' salary. According to the ITO, these lump sum payments were in the nature of bonus in view of the nomenclature adopted by the assessee and rejected the assessee''s contention that special allowance was paid as an additional incentive to the employees for extra work they had to perform for the increase in volume of business of the assessee-company. So he disallowed the amounts exceeding 20 per cent of the salary resulting in disallowance of Rs. 75,877. On appeal, the Commissioner (Appeals) upheld the addition. On further appeal, the Tribunal deleted the disallowance by observing as follows :

We have heard the submissions of both the parties and considered the facts of the case. The case of the assessee is that the amount represented special allowance to give incentive to the employees who worked hard in the assessee-company and as a result of their extra work the volume of business of the assessee-company had gone up to a considerable extent. The facts that bonus was separately allowed to the staff who were also paid special allowance was not controverted by the learned departmental representative. On a consideration of these facts as also considering the past record of the assessee, we are of the opinion that the lower authorities were not justified in disallowing the assessee''s claim for deduction of Rs. 75,877 treating the sum as bonus payment. We, therefore, directed that the disallowance of this amount be deleted.

From the facts and circumstances of this case as recorded by the Tribunal it appears that in this case the amount represented the special allowance to the employees to give incentive who worked hard in the assessee-company and as a result of their extra work the volume of the business of the assessee-company had gone up to a considerable extent. It is not in dispute that the bonus was separately allowed to the staff who were also paid special allowance. In our view, the payment in this case partakes of the character of additional emoluments and it is not a bonus as contended by the revenue.

We may refer to the decision of this Court where the similar question came up for consideration in CIT v. Holman Climax Mfg. Ltd. [IT Reference No. 336 of 1987, dated 5-2-1991]. There we have held that nomenclature is not decisive and one has to look at the entire facts and circumstances of the case. If the payment is in fact an additional emoluments, in that event, it will not be hit by the Payment of Bonus Act, 1965. We are of the view that the similar principle will govern the present case.

For the reasons aforesaid we answer the question in this reference in the affirmative and in favour of the assessee. There will be no order as to costs.

Sen, J.

I agree.