1. The Income-tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 1982-83 for opinion to this Court :
1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the amount of Rs. 59,271 paid as incentive bonus was allowable expenditure
2. The brief facts of the case are as follows :
3. The assessee/opposite party (hereinafter referred to as 'the assessee'), is a company. In its profit and loss account the assessee claimed incentive bonus amounting to Rs. 59,271 as business expenditure to meet out the business expediency. The assessing authority noticed that the assessee had already paid a sum of Rs. 74,343 by way of bonus to its employees which was calculated at 20 per cent, of the salary and in addition to that bonus a sum of Rs. 59,271 was paid to the employees by way of incentive bonus. The assessing authority was of the view that the bonus and the incentive bonus both should be considered together for watching the limit of 20 per cent, allowable under the Payment of Bonus Act. In that view of the matter, he disallowed a sum of Rs. 59,271 being in excess of 20 per cent, of the salary paid to the employees. In appeal before the Commissioner of Income-tax (Appeals), it was pointed out by the assessee that the incentive bonus was paid for better efficiency and it was being given to the workers since the year 1971 and was never disallowed. It was further pointed out that the incentive bonus had been paid at figures varying from 10 per cent. to 19 per cent. Of the salary depending on the performance appraisal of each employee on time scale. The Commissioner of Income-tax (Appeals) allowed the said amount on the ground that the incentive bonus was by way of additional salary linked with the productivity and efficiency of the workers. On appeal being filed by the Department, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) on the ground that the incentive bonus had been paid in the past and it had not appeared to be profit linked, rather it was linked with the productivity efficiency of the worker.
4. Heard learned standing counsel. No one appears on behalf of the assessee. The submission of learned standing counsel is that the payment of Rs. 59,271 was in the nature of bonus and since it was in excess of 20 per cent. Of the salary it was rightly disallowed. The submissions of learned standing counsel cannot be accepted in view of the findings recorded by the Commissioner of Income-tax (Appeals) as well as by the Tribunal. Both the authorities have held that the amount was paid at figures varying from 10 per cent, to 19 per cent, of the salary depending on the performance appraisal of each employee on time scale and it was by way of additional salary linked with productivity and efficiency of workers and not linked with the profit.
5. Sections 36(l)(ii) and 37 of the Act as existed during the relevant period reads as follows:
Section 36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28--...
(ii) Any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission : Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (21 of 1965), apply shall not exceed the amount of bonus payable under that Act.
(the above proviso has been omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989).
Section 37(1) Any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'.
6. It is true that a sum of Rs. 59,271 was paid as incentive bonus to the employees may not be allowable under Section 36 but it is allowable as expenditure expended only for the purposes of business in computing the income chargeable under the head 'Profits and gains of business or profession.'
7. The Commissioner of Income-tax (Appeals) and the Tribunal have recorded findings that it was paid at figures varying from 10 per cent. to 19 per cent. Of the salary depending upon the performance appraisal of each employee on time scale by way of additional salary linked with productivity and efficiency of the worker. The said amount was paid to the employees as production incentive and was wholly and exclusively for the purposes of business and as such, allowable under Section 37 of the Act. In this view of the matter, we do not find any error in the order of the Tribunal and the same is accordingly upheld.
8. In the result, the question referred is answered in the affirmative, in favour' of the assessee and against the Revenue.