THE COMMISSIONER OF INCOME TAX,PANAJI,GOA. vs. M/S.SESA GOA LTD.PANAJI,GOA.

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TXA/65/2002HC BombayHCBM05002320200211 December 2008Author: SWATANTER KUMAR, C.J.,N. A. BRITTO8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the finding of the Tribunal was a primary finding of fact and therefore, there was no reason to interfere with the impugned order. The Court noted that the Commissioner of Income Tax (Appeals) had previously found that the assessee had been continuously paying 20% bonus for the last 10 years, making the payment customary and necessary for the business. This finding was not questioned by the Department in its grounds of appeal. The Court also referenced the Kerala High Court's decision in Commissioner of Income-tax Vs P. Alikunju, M.A. Nazir, Cashew Industries, which stated that all three conditions under the second proviso to Section 36(1)(ii) must be satisfied for a payment not required by the Bonus Act to be considered reasonable and deductible. The Court acknowledged that the assessee had been paying bonus in excess of the Bonus Act for the last 10 years, which had become a practice, and both the CIT(A) and the Tribunal had recorded findings that such bonus was payable as a general practice in similar businesses. The Supreme Court's decision in Workmen of Kettlewell Bullen and Co. Ltd. Vs Kettlewell Bullen and Co. Ltd. was also cited, supporting the inference of customary bonus based on a long period of uniform payment. Consequently, the appeal was dismissed.

What were the facts?

The Commissioner of Income Tax (Appellant) filed an appeal under Section 260-A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT), Panaji Bench, dated May 2, 2002. The appeal concerned Assessment Years 1985-86, 1988-89, and 1990-91, specifically relating to the Assessment Year 1988-89. The dispute involved the deductibility of an amount of Rs. 18,73,192 paid by the assessee, M/s. Sesa Goa Ltd. (Respondent), to its workers over and above the limit prescribed by the Payment of Bonus Act. The Commissioner of Income Tax (Appeals) had allowed this deduction, a decision that the Revenue challenged before the ITAT and subsequently before the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, there was any material before the ITAT to conclude that the amount of Rs. 18,73,192 paid by the assessee to its workers over and above the Payment of Bonus Act is in the nature of Customary Bonus? (Question of fact/mixed law and fact) 2. Whether, on the facts and in the circumstances of the case, the ITAT was justified in holding that the amount of Rs. 18,73,192 paid by the assessee to its workers is allowable as deduction under Section 36(1)(ii) of the IT Act? (Question of law) Assessee's Contentions: The assessee argued that the payment was covered under the second proviso to Section 36(1)(ii) of the Act, which allows deduction of bonus or commission if it is reasonable with reference to the employee's pay and service conditions, the business profits, and the general practice in similar businesses. They contended that the case of Commissioner of Income Tax Vs Rajaram Bandekar and Sons (Shipping) Pvt. Ltd. was not applicable or that they were covered by the second proviso. Revenue's Contentions: The Revenue argued that if the amount was not allowable under Section 36, then the amount paid over and above the statutory limit was also not allowable under Section 37 of the Act. They relied on the decision in Commissioner of Income Tax Vs Rajaram Bandekar and Sons (Shipping) Pvt. Ltd. and contended that deductions under Section 36(1)(ii) were permissible only within the specified limits of admissible bonus under the Payment of Bonus Act, as per the first proviso.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 36(1)(ii),Section 37

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF BOMBAY AT GOA INCOME TAX APPEAL NO. 65 OF 2002 The Commissioner of Income Tax, ) having office at Aayakar Bhavan, ) Patto-Plaza, Panaji – Goa. ).. .. Appellant Versus M/s. Sesa Goa Ltd., ) having office at Rua-de-Ourem, ) Panaji – Goa. ).. .. Respondent -- Shri S.R. Revonkar for the Appellant. Shri V. Frank for the Respondent. -- CORAM : SWATANTER KUMAR CJ & N.A. BRITTO, J JUDGMENT RESERVED ON : 21ST NOVEMBER, 2008 JUDGMENT PRONOUNCED ON : 11TH DECEMBER,2008

JUDGMENT : ( PER SWATANTER KUMAR, C..J. )

1.

This is an appeal under Section 260-A of the Income Tax Act, 1961, hereinafter referred to as the “Act,” directed against the order of the Income Tax Appellate Tribunal, Panaji Bench, dated 2nd May, 2002. The Appeal was admitted by an order of a Division Bench

2 of this Court on 21st October, 2002 where it framed the following substantial questions of law. (A) Whether on the facts and in the circumstances of the case, there was any material before the ITAT come to the conclusion that the amount of Rs. 18,73,192/- paid by the assessee to its workers over and above the Payment and Bonus Act, is in the nature of Customary Bonus ? (B) Whether on the facts and in the circumstances of the case the ITAT was justified in holding that the amount of Rs.18,73,192/- paid by the assessee to its workers, is allowable as deduction under section 36(1)(ii) of the IT Act ?

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2.

The Income Tax Appellate Tribunal was concerned with the Assessment Years 1985-86, 1988-89 and 1990-91. The questions aforestated were referable to Assessment Year 1988-89 and issue was related to payment of bonus over and above the limit in the Payment of Bonus Act. The assessee had paid Rs.18,73,192/- over and above [237 ITR 628 (Bom.)]. According to the Department, the case of the assessee was not covered as permissible deductions under Section 4 36(1)(ii) of the Act inasmuch as under the Proviso, deductions permissible have to be within the specified limits of admissible bonus under the Payment of Bonus Act.

3.

On the contrary, according to the assessee, there is no settled principles of law stated by the Division Bench of this Court in Rajaram Bandekar & Sons’ case (supra), as contemplated under the first Proviso to Section 36(1)(ii) of the Act for the relevant Assessment Years 1988-89. There is no dispute regarding proposition of law as stated by the Division Bench in Rajaram Bandekar & Sons’ case (supra) but the assessee would be fully covered under second proviso to Section 36(1)(ii) of the Act, which reads as under:- “Provided further that the amount of bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to - (a) the pay of the employee and the conditions of his service; (b) the profits of the business or profession for the previous year in question; and ( c) the general practice in similar business or profession.”

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4.

The Tribunal noted that the sum paid by the assessee to the employees as bonus or commission for the services rendered is allowable where such a sum would have been payable to them as profits or dividends, if it had not been paid as bonus or commission. The Tribunal examined the reasonability of such payment and came to the conclusion of a finding of fact that reasonable bonus had been paid for the services rendered by the employees and the same was in accordance with the general practice followed in similar business or profession. Viewing that, it recorded its satisfaction in regard to ingredients of relevant provision and upheld the order of the Commissioner.

5.

Learned Counsel appearing for the Revenue argued that the ingredients of Second Proviso have not been satisfied as a matter of fact, and therefore, there was no question of allowing deductions as prayed by the assessee. This argument is without any basis. Firstly, the Commissioner of Income Tax (Appeals), Belgaum, in his order dated 26th September, 1990 on the basis of record produced before it 6 returned the findings and accepted the contentions by noticing as under :- “3(vii) ...............................................

The appellant has been continuously paying 20% bonus for the last 10 years and this payment has become customary and necessary for the purpose of business. He points out that during the accounting year 1987-88 bonus was offered less and there was an agitation and subsequently the difference had to be paid to keep the business running.................................”. Correctness of the said finding was never questioned by the Department. This order was challenged by the Revenue by filing an appeal. In the Grounds of Appeal submitted on behalf of the Department not even a whisper was raised that the findings recorded were incorrect and consequent benefit of payment of bonus amounting to Rs.18,73,192/- was incorrect on that basis.

6.

Learned Counsel appearing for the Respondent also placed reliance upon the judgment of Kerala High Court in the case of Commissioner of Income-tax Vs P. Alikunju , M.A. Nazir, Cashew Industries, (1987) 166 ITR 0611, where the Court took a view that all 7 the three conditions postulated under Clauses (a) to ( c) of the second proviso must be satisfied in order that the payment which is not required by the Bonus Act is to be regarded as reasonable so as to warrant deduction under Section 36(1)(ii) of the Act. It is true that wherever a bonus is paid to an employee in excess or otherwise than what is required to be paid under the Bonus Act, such a payment is not entitled for deduction automatically but the assessee has to satisfy all the three ingredients, namely, the pay of the employee and the conditions of his service; the profits of the business or profession for the previous year in question; and the general practice in similar N.A. BRITTO, J

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