Full Judgment
The Income Tax Appellate Tribunal, Allahabad has referred the following question of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court:
'Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the payment of Rs. 30,396 under the head 'Bonus to senior members of employees who are not entitled to receive the bonus under the provisions of Payment of Bonus Act, 1965' is an admissible expenditure under the Income Tax Act?'
2. Briefly stated the facts giving rise to the present case are as follows :
The reference relates to the assessment year 1981-82. The assessee-respondent is a limited company and derives income from the manufacture and sale of sugar. The assessing officer disallowed a sum of Rs.30,396 as bonus paid to the senior members of the staff in view of the provisions of section 36(1)(ii) of the Act. The disallowance was confirmed by the CIT(A), Kanpur. The Tribunal has set aside the disallowance of the above sum on the finding that the payment of bonus of Rs. 30,396 cannot be regarded as being more than what was reasonably required to be paid.
3. Heard Shri R.K. Upadhyay, the learned standing counsel for the department and none appeared for the assessee/respondent. The learned standing counsel submitted that a sum of Rs. 30,396 being the amount of bonus was paid to the senior members of the staff although for the year under consideration there was no profits of the business. The Tribunal without looking to the parameters for grant of deduction as admissible under section 36(1)(ii) of the Act granted the deduction of the above amount. Strong reliance was placed by the learned counsel on a judgment of the Supreme Court in the case of Shahjada Nand & Sons v. CIT : [1977]108ITR358(SC) .
4. The question whether the amount paid as bonus was a reasonable amount or not had to be determined with reference to the three factors, as pointed by the Supreme Court in the case of Shahzada Nand & Sons (supra). The relevant paragraph is quoted below
'Turning to the provisions of section 36, sub-section (1), clause (ii), we find that the proviso to that clause lays down three factors for the purpose of determining the reasonableness of the commission paid to an employee. The question whether the amount of the commission is a reasonable amount or not has to be determined with reference to these three factors. Sometimes these three factors are loosely described as conditions but they are not really conditions on the fulfilment of which alone the amount of commission paid to an employee can be regarded as reasonable. They are merely factors to be taken into account by the revenue authorities in determining the reasonableness of the amount of commission.'
5. The Tribunal has followed its earlier orders passed for the earlier assessment years. This court has held in CIT v. Champaran Sugar Co. Ltd. (IT Reference No. 20 of 1990, dated 14-2-2005) and CIT v. Champaran Sugar Co. Ltd. (IT Reference No. 61 of 1990, dated 24-3-2005) in the case of assessee /respondent for the assessment year 1976-77 and assessment year 1978-79 respectively, that the Tribunal was not legally correct in holding that the payment of amount under the head 'bonus to Senior members of the employees who are not entitled to receive the bonus under the Payment of Bonus Act, 1965 is admissible expenditure under the Act.
6. Respectfully following the above judgments, we answer the question referred to us in negative i.e., in favour of the department and against the assessee. However, no order as to costs.