Judgment:
Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1978-79, 1981-82 and 1982-83, the following common 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 holding that the incentive bonus paid by the assessee to its employees for the period relevant to the assessment years 1978-79, 1981-82 and 1982-83, was an admissible deduction in computing the taxable income of the assessee ?'
2. Shortly stated, the facts are that in the accounts furnished before the Income-tax Officer, the assessee claimed deduction of different sums as ' incentive bonus', The payment .of incentive bonus was claimed to have been made to motivate the workers to produce more. The Income-tax Officer, however, treated ' incentive bonus' as part of bonus to which the provisions of the Payment of Bonus Act, 1965, were applicable. From the total amount, the Income-tax Officer disallowed amounts which were beyond the maximum limits prescribed under the above Act. He, accordingly, disallowed Rs. 1,51,591, Rs. 1,11,109 and Rs. 1,47,039 for the assessment years 1978-79, 1981-82 and 1982-83, respectively.
3. Being aggrieved, the assessee challenged the above disallowances in appeals before the Commissioner of Income-tax (Appeals). It was claimed that incentive bonus was paid to workers in pursuance of an agreement with the employees. The decision of the Supreme Court in the case of Hukumchand Jute Mills Ltd., : (1979)ILLJ461SC , was also relied upon for the proposition that Payment of Bonus Act, 1965, deals only with profit or productivity bonus which does not include puja, customary bonus and other bonus. The Commissioner of Income-tax (Appeals) on consideration of the assessee's claim deleted the disallowance made, vide separate orders in all the three years.
4. The Revenue, being aggrieved, challenged the orders of the Commissioner of Income-tax (Appeals) before the Appellate Tribunal. All the appeals were disposed of by the Tribunal by a consolidated order dated October 13, 1988. The Tribunal, following its earlier order for the assessment year 1976-77, upheld the order of the Commissioner of Income-tax (Appeals). A similar question came up for consideration before this court in Income-tax Reference No. 336 of 1987 in the case of CIT v. Holman Climax . : [1992]196ITR698(Cal) , where the judgment was delivered on February 5, 1991. In that case also, the question was whether incentive bonus is eligible for deduction notwithstanding the provisions contained in Section 36(1)(ii).
5. The incentive bonus scheme was first introduced in the assessee's. Ujjain plant in April, 1970.
6. The Incentive bonus was paid by the company in accordance with an agreement reached with the representatives of the Employees' Association in April, 1970. Subsequently, in June, 1973, a revised incentive bonus scheme was introduced as agreed upon by the works manager and the president of the workers' union at Ujjain, in terms of which the employees of the assessee's Ujjain unit have been classified into three main groups, viz., Group I Productive (Direct), Group II Productive (Indirect) and Group III (Non-productive).
7. The said scheme which was subsequently revised in June, 1973, reads as follows :
' 1. The Revised Incentive Bonus Scheme will be effective from June, 1973.
2. The Revised Incentive Bonus Scheme is drawn out to motivate the employees of the Ujjain plant to produce more.
3. Under the scheme, all employees of the works are classified designation-wise into three main groups, viz., Group-I Productive (Direct), Group-II Productive (Indirect) maintenance and service categories, Group-III Non-productive. The details of these groupings including the designations of the respective sub-groupings are given in annexure II which forms an integral part of this scheme.
4. The table of money incentive in Rs. ... . P. . . . per day is applicable for the whole grade, designation-wise (annexure III).
5. This table of money incentive in Rs. ... P. ... per day will not be influenced by any variation/revision of the basic wages and will remain unchanged till the employee concerned is promoted to a new category having a higher incentive rate per day as per table provided.
6. The following is the basis rational on which the unit conversion factors for each size of good pipe is to be arrived at for the purpose of this scheme taking into consideration the rate of production of each size of good pipe per day under normal effort and conditions :
Size4 metre length5.5. metre length
80 mm.0.80--100 mm.--0.90150 mm.--0.94200 mm.--1.02250 mm.--1.25300 mm.--1.50
7. Incentive bonus under this scheme will be calculated on daily incentive payments to Rs. ... P. ... for 16 hours per day based on two shifts operation per day of four spinning machines against daily converted units. Please see annexure I for details. The total incentive amount for the pay period of one month will be arrived at by multiplying the daily incentive payment rate with the actual number of days worked in a month.
8. This incentive bonus scheme is divided into fourteen (14) stages of units based on production of good pipes for double shift operation per day. This bonus table is valid for the production of units per day corresponding to 16 hours. Any production beyond the said hours will normally not be taken into account in calculating bonus : Provided, however, if due to causes like major breakdown, power failure also occurring during the course of the said two shifts of 16 hours in a day, over which the employees concerned had no control, it was not possible to work 16 hours and in consideration thereof the works manager orders continuation of production beyond the said shift, then in such event, work done beyond the said shift of 16 hours will also be taken into account for the purpose of calculation of bonus.
9. No bonus will be paid if the average converted units per day fall below 789 units over a pay period.
10. The following factors will be applied based on the number of working days an employee is present. :
No. of working days attendedFactor
Up to 6 working days0.75 From 7 working days to 12 working days0.85 From 13 working days to 18 working days0.95 From 19 days and above1.00
For calculating the quantum of incentive bonus earnings, the following formula will be used :
Incentive ratein Re./day x No. of workingapplicable days actually x Factor attended 11. If, at any stage, the units fall below a higher stage, the preceding lower unit value only will be taken for calculation of bonus of individuals of any group and the incentive payments as per table will be distributed accordingly. Following rules will be followed for calculation :
Pay for 827.5 units = 828 unitsi.e., the II stage.Whereas 827.4 units = 827 units,i.e., the I stage. 12. The bonus amount will be paid between 15th and 20th of each month for the output of the previous month.
13. For employees manning casting shop, cupoled and core shop departments the units shall be ascertained on the basis of the good pipe produced.
14. For employees manning other departments the unit shall be ascertained on the basis of good pipes put to stock.'
8. The scheme, as has been made clear in Clause 2, has been worked out solely for the purpose of motivating the employees to achieve higher production of good pipes. It is also found that the payment under the scheme has to be made monthly along with wages of the employees working out the scheme. It is also abundantly clear that the amount paid under the scheme is in no way linked with the actual production that may be achieved by the Ujjain plant at the end of the year or on the annual profits of the assessee-company.
9. There cannot be any doubt that the incentive bonus was based on production of the good pipes by each employee for double shift operation per day. It is not linked in any way with the annual profits nor was it based on production or productivity of pipes in the assessee's factory. The payment under the scheme was made monthly to the employees and as such it could not come within the ambit of the Payment of Bonus Act, 1965. It is in other words an additional emolument. Mere use of the expression 'bonus' could not render it a bonus, if it is otherwise clear that what was paid was not bonus but incentive wages.
10. For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee.
11. There will be no order as to costs.
Shyamal Kumar Sen, J.
12. I agree.