Ajit K. Sengupta, J.
1. The two references, one at the instance of the Revenue and the other at the instance of the assessee, are consolidated.
2. In the reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the following questions of law have been referred by the Tribunal for the opinion of this court :
Assessment year 1975-76 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to weighted deduction under Section 35B of the Act in respect of commission of Rs. 7,21,133 paid by the assessee to P. E. C. and S. T. C. ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to deduction under Section 80G in respect of deduction of Rs. 2,500 paid to Viswamangal Trust ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to weighted deduction under Section 35B of the Act in respect of Rs. 8,390 being audit fee and Rs. 1,16,127 being sales commission incurred at Malaysia for the maintenance of the foreign branch ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing that the deduction of the sum of Rs. 22,49,424 be allowed as bonus in the computation of income of the assessee for the assessment year 1975-76 ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Income-tax Officer could not have disallowed the assessee to create a reserve for the purpose of development rebate for 1975-76 assessment year, if in his opinion, the assessee had a positive income in that year and in that view in allowing the assessee's claim of setting off the unabsorbed development rebate brought forward and of opportunity to create development rebate reserve in the assessment year 1975-76 ?
Assessment year 1976-77 :
6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Income-tax Officer could not have allowed the assessee to create a reserve for the purpose of development rebate for 1975-76 assessment year, if in his opinion, the assessee had a positive income in that year and was right in that premise in allowing the assessee's claim of carrying forward of development rebate in the assessment year 1976-77 ?
7. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to weighted deduction under Section 35B of the Act in respect of Rs. 28,16,475 paid to P. E. C. of India Limited ?
8. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80G in respect of donation of Rs. 8,000 paid to Viswamangal Trust ?
9. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to Weighted deduction under Section 35B of the Act in respect of Rs. 8,391 being audit fees and Rs. 74,869 being sales commission incurred in Malaysia for maintenance of a foreign branch ?'
3. In the reference under Section 256(1) of the Act at the instance of the assessee, the following question has been referred to this court :
'Whether the Income-tax Appellate Tribunal was justified in holding that bonus liability of Rs. 22,49,424 is not an allowable deduction in computing the total income for the assessment year 1978-79 ?'
4. The reference at the instance of the Revenue relates to the income-tax assessment of the assessee-company for the two previous years ending December 31, 1974, and December 31, 1975, corresponding to the assessment years 1975-76 and 1976-77. During each of the said two previous years, the assessee-company had claimed weighted deduction under Section 35B of the Income-tax Act, 1961, in respect of certain expenses. One of such items of expenditure was commission paid to two public sector undertakings, namely, P. E. C. of India Ltd. and S. T. C. of India Ltd., aggregating to Rs. 7,21,133 in the previous year relevant to the assessment year 1975-76 and Rs. 28,16,475 in the previous year relevant to the assessment year 1976-77 in respect of exports made by the assessee-company through them.
5. The Income-tax Officer did not allow weighted deduction in respect of the payment of commission as aforesaid on the ground that the same was paid in India. Both the Commissioner of Income-tax (Appeals) as well as the Tribunal directed the Income-tax Officer to allow weighted deduction on the said commission following the decision of the Special Bench of the Tribunal in the case of J. Hemchand and Company in Income-tax Appeal No. 3255/(Bom) of 1976, if it was found that the commission was paid for securing export orders. This issue was considered in detail recently by the Kerala High Court in CIT v. Kerala Nut Food Co. : [1991]192ITR585(Ker) . There, the Kerala High Court held that weighted deduction is admissible on commission paid in India to agents who had rendered positive and specific services for marketing the assessee's goods outside India. This court also held in CIT v. G. E. C. of India Ltd. : [1991]192ITR559(Cal) that commission paid in India to Project and Equipment Corporation Ltd., who obtained orders for export of the products and goods manufactured by the assessee is entitled to weighted deduction under Section 35B of the said Act. Respectfully following the aforesaid decisions, we answer questions Nos. 1 and 7 in this reference in the affirmative and in favour of the assessee.
6. The answers to questions Nos. 2 and 8 are covered against the assessee by a decision of this court in CIT v. Upper Ganges Sugar Mills Ltd. : [1985]154ITR308(Cal) . We, therefore, answer both these two questions in the negative and in favour of the Revenue.
7. Questions Nos. 3 and 9 in the said reference relate to the claims for weighted deduction under Section 35B in respect of audit fees of Rs. 8,390 and commission paid at Malaysia for maintenance of a foreign branch. No weighted deduction is admissible for payment of audit fees as the same does not fall in any of the items specified in Clause (b) of Section 35B(1) of the said Act. However, weighted deduction is admissible on the commission paid at Malaysia for maintenance of a foreign branch in the light of our decision in CIT v. Chloride India Ltd. : [1992]193ITR355(Cal) . We, therefore, hold that the Tribunal was not right in allowing weighted deduction under Section 35B in respect of audit fees for each of the said two years. The weighted deduction, however, was correctly allowed by the Tribunal on commission paid in Malaysia for maintenance of a foreign branch. Questions Nos. 3 and 9 are answered accordingly, partly in favour of the assessee and partly in favour of the Revenue.
8. Questions Nos. 5 and 6 raised in this reference relate to the question of development rebate. The relevant facts are as under :
9. The assessee-company had claimed set off of unabsorbed development rebate brought forward from the earlier years, namely, 1968-69 to 1974-75 in the assessment years 1975-76 and 1976-77. The Income-tax Officer disallowed the assessee's claim for the carry forward and set off of the unabsorbed development rebate for the earlier years on the ground that the assessee-company had not created the necessary reserve in terms of Sub-section (3) of Section 34 of the Income-tax Act, 1961, in its accounts for the calendar year 1974. On appeal before the Commissioner of Income-tax (Appeals), it was submitted that the assessee-company did not create any reserve in the calendar year 1974 corresponding to the assessment year 1975-76 since, according to it, it had no taxable income in that year. It was also submitted that the assessee had created full reserve in its accounts for the calendar year 1975 corresponding to the assessment year 1976-77. However, alternatively, it was submitted that since the Income-tax Officer had computed the assessee's income for each of the said two years at positive figures, he should have given the assessee an opportunity for creating reserve for development rebate in this year on the basis of the circular dated January 30, 1976, issued by the Central Board of Direct Taxes. The Tribunal found that the assessee had no taxable income in the previous year relevant to the assessment year 1975-76 as a result of the various reliefs allowed to the assessee-company by the Tribunal.
10. In this view of the matter, it is obvious that no development rebate can be actually allowed to the assessee in the previous year relevant to the assessment year 1975-76. As such, there was no need to create any development rebate reserve in the accounts for the calendar year 1974 corresponding to the assessment year 1975-76. The assessee-company has admittedly created full development rebate reserve in its accounts for the calendar year 1975 corresponding to the assessment year 1976-77. In our view, therefore, the Tribunal was fully justified in directing the carry forward of development rebate to the previous year relevant to the assessment year 1976-77.
11. In this view of the matter, we answer both questions Nos. 5 and 6 in the affirmative and in favour of the assessee.
12. Question No. 4 in respect of the assessment year 1975-76 and the only question for the assessment year 1978-79 at the instance of the assessee relate to the deduction of Rs. 22,49,424 allowed by the Tribunal on account of bonus. This payment was made by the assessee-company to its workers in accordance with an agreement reached with the workers' union on September 30, 1975, in terms of which the management agreed at the request of the union to make an advance payment of 10.5 per cent. of the wages/salary plus D. A. actually earned during the year to those workers on the rolls of the company who were eligible under the Act to receive bonus. This payment was made to enable the workmen to celebrate the puja festival and maintain industrial peace pending bonus settlement.
13. The aforesaid advance paid in 1975 in accordance with the aforesaid agreement was adjusted in the books of account of the company in the calendar year 1977 as an ex gratia payment to the workmen and staff in appreciation of the services rendered by them during the years 1974, 1975 and 1976. The aforesaid decision of the assessee-company was conveyed by it to its workers through a notice dated September 25, 1977, which stated, inter alia, as follows :
'The company had been able to achieve an all time high in exports during the year 1976, and as a matter of fact exports considerably helped the company to mitigate the bane of continuing domestic recession and to improve capacity utilisation. The workmen/staff who had extended full co-operation to the company during the above year have assured the management that they would continue to extend co-operation in maintaining industrial peace in the company and to achieve the targets of production in future also. In consideration of the above and for such services rendered as also for increasing the efficiency of the workmen/ staff, the management, as a very special case, had decided after discussion with the Union, to make an ex gratia payment to the workmen and staff who were in the employment of the company during the years 1974, 1975 and 1976, and are still in employment, to the extent of advance payment of 6.5 per cent. made to such workmen/staff in the year 1975.'
14. The Income-tax Officer disallowed the assessee-company's claim to the extent of Rs. 22,49,424 on the ground that it was nothing but a recoverable advance.
15. On appeal before the Commissioner of Income-tax (Appeals), it was, inter alia, submitted that the advance salary and wages paid in 1975 were adjusted in 1977 against the liability for bonus provided in the accounts of the assessee-company in the calendar year 1974 and that the company did not recover the advance from its employees in order to maintain industrial peace. It was also submitted that the workers were not satisfied with the minimum bonus of four per cent. under the Payment of Bonus Act, 1965, and that after protracted negotiation, the management agreed to pay 10.5 per cent. as bonus, although in the books of account, the sum paid was shown as an advance. It was also submitted that the restrictions contained in Section 36(1)(ii) of the said Act were not applicable in respect of the assessment year 1975-76 and there was no restriction to pay bonus to workers at the rate of 10.5 per cent. of their salaries and wages. The Commissioner of Income-tax (Appeals) also rejected the contentions of the assessee-company on the ground that it was only in 1977 that the assessee-company decided to adjust the said sum of Rs. 22,49,424 as ex gratia payment in appreciation of the services rendered by its employees during the three successive years 1974, 1975 and 1976 and that the company did not consider the advance as an ex gratia payment either in the year 1974 or in the year 1975.
16. The Commissioner of Income-tax (Appeals), therefore, held that the deduction for advance payment of Rs. 22,49,424 cannot be allowed in any of the previous years relevant to the assessment years 1975-76 and 1976-77.
17. On further appeal before the Tribunal, it was submitted on behalf of the assessee that payment of 10.5 per cent. to employees by way of ,'bonus was neither unreasonable nor excessive in view of the fact that right from the calendar year 1971 to 1975, the assessee-company was paying bonus to its workers and staff at rates ranging between 10 and 12 per cent. of their salaries and wages. It was also submitted that the statutory prohibition restricting the payment of bonus to four per cent. of the salaries/wages came on the statute book only on September 25, 1975, that is to say, long after the close of the relevant accounting year and that the Payment of Bonus Act clearly permits payment of bonus within the maximum limit of 20 per cent. laid down therein. The Tribunal held that under Section 10 of the Payment of Bonus Act, there was no bar to the payment of bonus of more than four per cent., but not more than 20 per cent. provided there was sufficient allocable surplus. It was also found by the Tribunal that the second proviso to Sub-section (3) of Section 10 of the Payment of Bonus Act made it clear that where an excess payment had been made before September 1, 1975, it could be adjusted in the later years.
18. The Tribunal, therefore, held that the liability for bonus provided by the assessee-company in its accounts for the calendar year 1974 corresponding to the assessment year 1975-76 at the rate of 10.5 per cent. was a statutory legal liability and there was nothing to show that the same was prohibited under the law. The Tribunal, therefore, deleted the disallowance of Rs. 22,49.424 on account of bonus as made by the Income-tax Officer.
19. We find that a somewhat similar question came up for consideration before this court in CIT v. Bisra Stone Lime Co. Ltd. : [1987]164ITR693(Cal) . There, this court held that the statutory liability to pay bonus under the Payment of Bonus Act, 1965, is allowable in the assessment year 1971-72 even when it was finally adjusted and settled on October 15, 1971, i.e., long after the close of the relevant previous year. This court held that the liability having accrued in a particular year; its subsequent quantification will not defer the liability to the year in which the quantification takes place. We find that the amount of Rs. 22,49,424 was actually paid to the workers and employees in terms of the agreement reached with the workers' union on September 30, 1975. The amount in question was provided as bonus payable to the workers in the calendar year 1974 being the previous year relevant to the assessment year 1975-76 and claimed as business deduction. It is true that the amount of advance was adjusted against bonus liability provided in the year 1974 or treated by way of ex gratia payment in the calendar year 1977, but the fact remains that the assessee-company had been paying bonus even in the earlier years calculated at the rate of 10 to 12 per cent. of the salary/wages.
20. Having regard to the past practice, it was nothing unusual for the assessee-company to provide bonus liability at the rate of 10.5 per cent. in the calendar year 1974 and claim it as business deduction in the assessment in the year 1975-76.
21. In the reference of the same assessee being Reference No. 209 of 1984 for the assessment year 1978-79, the same issue has been raised as regards bonus. In that reference, the assessee has made an alternative claim for deduction of Rs. 22,49,424 on account of bonus in the assessment for the year 1978-79. In our view, it would be more appropriate to allow bonus of Rs. 22,49,424 as a business deduction in the previous year relevant to the assessment year 1975-76.
22. We, accordingly, answer question No. 4 in the affirmative and in favour of the assessee and the only question in Income-tax Reference No. 209 of 1984 for the assessment year 1978-79 in the negative and in favour of the Revenue.
23. There will be no order as to costs.
Shyamal Kumar Sen, J.
24. I agree.