The Commissioner of Income Tax-III vs The Sri Venkatesa Mills Ltd.

K. Raviraja Pandian, J.—The Revenue is on appeal against the order of the Income Tax Appellate Tribunal, Madras ''A'' Bench, dated 25.11.2003 made in ITA No. 2428/Mds/1996.

The assessee is a company engaged in the business of manufacture and sale of yarn and fabrics. The assessment for the assessment year 1994-95 was completed on 23.02.1996 on a total income of Rs. 56,16,750/-. In the course of the assessment proceedings, the Assessing Officer found that the assessee had provided in the accounts a sum of Rs. 73,42,496/- as bonus and ex-gratia payable to the employees. It was explained by the assessee that on account of a strike by the workers from 6.11.1994 to 15.12.1994 the assessee was not able to pay the full bonus on or before the due date for filing the return of income. The assessee handed over a sum of Rs. 59,77,503/- on 25.11.1994 by cheque drawn on Karur Vysya Bank Limited to the Trustees of Venkateswara Mills Limited Workers'' Bonus payment Trust and it was explained that this was an irrevocable Trust with the object of disbursing bonus payable to the workers. The assessee, therefore, contended that by this act the assessee had complied with the provisions of Section 43B(c). The Assessing officer held that the payment made to the Trust could not be considered as disbursement of bonus to the workers. The payment of bonus had not been done on or before 30.11.1994. The Assessing Officer allowed a sum of Rs. 14,01,726/- actually paid before the due date for filing the return and disallowed the balance of Rs. 59,40,770/- u/s 43B(c) of the Act. Aggrieved by that order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner held that the payment to the Trust being irrevocable actually amounted to payment of bonus to the workers within the stipulated time limit and therefore, deleted the portion of the amount disallowed by the assessing officer. Aggrieved by that order, the Revenue has filed an appeal before the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal filed by the revenue. Hence the revenue has filed the present appeal by formulating the following questions of law:

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the transfer of the amount payable as bonus to the workers to a trust before the due date for filing of the return was sufficient compliance with Section 43B(c) of the Income Tax Act, 1961 and therefore, the amount could not be disallowed?

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the amount transferred to the trust was allowable as a deduction even though no such deduction was allowable as clearly laid down by Section 40A(9)?.

We heard the learned Counsel appearing for the Department and perused the materials on record.

From the finding recorded by the Tribunal, it is clear that the amount of bonus, which has been disallowed by the Assessing Officer has been parted by the assessee company well prior to the date prescribed for payment of such bonus and prior to 30.11.1994 and it is also an admitted case that payment to the Trust being irrevocable, it actually amounted to payment of bonus to the workers. What is the requirement of the provision is payment prior to the date prescribed. The second proviso to section 43B of the Income Tax Act as it stood prior to Finance Act, 1989 with effect from 01.04.1989 reads as follows:

No deduction shall, in respect of any sum referred to in Clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below Clause (va) of Sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.

The assessee is entitled to the deduction made towards bonus. The assessee had made the payment prior to the date of omission of the proviso, the payment made to the Trust being irrevocable would tantamount to payment of bonus to the workers. When that being so, we do not find any error in the order passed by the Tribunal and as such, the questions of law are answered in favour of the assessee and as against the Revenue. Accordingly, the Tax Case Appeal is dismissed.