INCOME TAX OFFICER v. ATIABARI TEA CO. LTD
[Citation -1984-LL-1130-8]

Citation 1984-LL-1130-8
Appellant Name INCOME TAX OFFICER
Respondent Name ATIABARI TEA CO. LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 30/11/1984
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags contractual obligation • state government • actual payment • excess amount • bonus act
Bot Summary: The Unions demanded 20 per cent bonus whereas the Management was agreeable to pay 15.41 per cent per the Computation Formula of Bonus Act. The question of making reference to the decision of Hukum Chand Jute Mills does not arise, for it is nobody's case in the present appeal that the payment in question is not of bonus out of profit but of customary bonus. 10 of the Payment of Bonus Act provides for payment of minimum bonus. 11 of the Payment of Bonus Act provides for the maximum bonus payable which, according to the said section, would not exceed 20 per cent of salary and wages of the employees (prior to the amendment of 1980 provision of s. 11 were part of the provisions of sub-s. of s. 10). The provisions about maximum bonus were similar in s. 10 as those now under s. 11. The result of the aforesaid amendment was that the liberty granted by s. 34(3) earlier to the employees and employers to enter into an agreement for granting to the employees bonus under the formula which was different from that under the Payment of Bonus Act was taken away. The question of assessee's claim for deduction of bonus has to be examined in the light of the aforesaid amended provisions of s. 34 which restored the right of the employer and the employee to come to an agreement with regard to amount of bonus to be given to the employees. Of West Bengal granted its approval to the aforesaid agreement between the employer and the employees, If such agreement had received approval of the Govt., it would be enforceable in law and the bonus paid in terms of the aforesaid agreement would be in accordance with the provisions of the payment of Bonus Act provided the provisions of cl.


ANAND PRAKASH, A. M.: This is departmental appeal challenging order of CIT (A) on following points: "That ld. CIT (A) was not justified on fact and in law in holding that payment made under contractual obligation would not be Bonus under payment of Bonus Act, 1965. That ld. CIT (A) erred in law in his finding that amount of Rs. 75,588 paid to employees was allowable expenditure on commercial expediency." fact giving rise to above controversy are in narrow compass and may be noted. assessee is company whose accounting period for asst. yr. 1979-80 ended on 31st Dec., 1978. During aforesaid previous year assessee company paid bonus accounting to Rs. 5,18,505. aforesaid bonus was paid in terms of agreement of settlement arrived at between assessee company on one hand and its workmen on other represented by various unions with help of Conciliation Officer, Shri R. K. Saha representing Directorate of Labour of Govt. of West Bengal. recital of case in said Memorandum of Settlement reads, inter alia, as follows: "The above mentioned management vide their letter dt. 21st Sept., 1978 sought intervention of this Directorate when dispute arose over quantum of bonus payable to workers for accounting year 1977. Unions demanded 20 per cent bonus whereas Management was agreeable to pay 15.41 per cent per Computation Formula of Bonus Act. This dispute resulted in agitation by workers and thus production was hampered. After protracted discussion, issue of bonus is settled as per following terms and condition. Terms of settlement: It is agree by between parties: (a) that in interest of good labour/management relation and for sake of uninterrupted production in garden, management will pay workers bonus at rate of 19.15 per cent on their total earnings during year as eligible under Act; (b) that out of percentage mentioned in cl. (a) above 3.74 per cent of wages will be paid pending approval of Government; (c) that above payment in terms of cl. (a) above will be made on or before 1st Oct., 1978; (d) that in view of above settlement, workers and unions assure their full cooperation to Management in running estate peacefully; (e) subject to approval of Government, this agreement is made under provision of s. 34 of Payment of Bonus Act as amended by Ordinance, 1978; (f) this settles issue of bonus for year 1977." On basis of aforesaid settlement assessee claimed deduction from its total income of aforesaid amount of Rs. 5,18,505. ITO, however, pointed out that allocable surplus available for year in question for distribution of bonus as per Payment of Bonus Act was Rs. 4,42,917 and that minimum bonus payable by company @ 8.33 per cent came to figure that i s less than Rs. 4,42,917. Thus according to him excess amount of bonus paid over surplus available worked out to Rs. 75,588 (Rs. 5,18,505 minus R s . 4,42,917). above surplus was, according to him paid, against provisions of Bonus Act and was, therefore, not allowable under s. 36(1)(ii) of It Act, 1961. assessee appealed against aforesaid order to CIT (A) who accepted assessee's contention by observing inter alia as follows: "It is further stated that Appellant Company follows mercantile system of accounting. provisions of Bonus Act would apply to amount paid voluntarily and unilaterally by company and provided for in accounts with reference to its profits. amount paid here represents actual payments in accordance with agreement arrived at with Union in presence of representative of Tea Association and State Government, about which assessee had no option. As payment represents actual payment in terms of agreement in respect of earlier year, it does not come in scope of Bonus Act, or s. 36(1)(ii) of IT Act. Accordingly, disallowance of Rs. 75,588 is deleted." He also pointed out that customary or contractual bonus did not come in ambit of Bonus Act and for this he relied on following authorities: (i) Hukum Chand Jute Mills Ltd. vs. Second Industrial Tribunal (1980) Taxaman 43; and (ii) Garware Synthetics (P) Ltd. vs. ITO (I.T.A. No. 3274/Bom/80 dt. 30th April 1982 (1982) 14 ITJ 628. department, in present appeal, assails above finding as incorrect and points out that any contract or agreement which is not in accordance with terms and conditions of Payment of Bonus Act would not be enforceable in law and, therefore, amount paid in excess of allocable surplus could not be allowed as deduction under s. 36(1)(ii). In support of above proposition, ld. departmental representative relied on decision of Tribunal, Calcutta Bench 'A', in case of Tinplate Co. of India Ltd. vs. ITO, F-Ward, Comp. Dist. I, Calcutta (I.T.A. No. 1155/Cal/1982 dt. 30th Dec., 1983). On behalf of assessee, reliance is placed on order of ld. CIT (A) and on decision of Tribunal, Calcutta Bench 'C' in I.T.A. Nos. 2124, 2125 & 2126 (Cal)/82 dt. 27th July, 1984. We have given careful consideration to rival submissions. That present payment of bonus is in terms of Payment of Bonus Act is not in doubt. In fact, Memorandum of Settlement makes this position abundantly clear. this being so, question of making reference to decision of Hukum Chand Jute Mills (supra) does not arise, for it is nobody's case in present appeal that payment in question is not of bonus out of profit but of customary bonus. CIT (A) had therefore clearly erred in referring to aforesaid decision and in presuming that ratio of said decision would apply to facts of present case. short point for decision in present appeal is whether payment made by assessee company is in accordance with various provisions of Payment of Bonus Act, 1965 as amended by Ordinance of 1978, to which pointed reference has been made in sub-cl. (e) of cl. 5 of Memorandum of Settlement. Sec. 10 of Payment of Bonus Act provides for payment of minimum bonus. Sec. 11 of Payment of Bonus Act provides for maximum bonus payable which, according to said section, would not exceed 20 per cent of salary and wages of employees (prior to amendment of 1980 provision of s. 11 were part of provisions of sub-s. (1) of s. 10). provisions about maximum bonus were similar in s. 10 as those now under s. 11. minimum bonus payable was 8.33 per cent in respect of any accounting year commencing on any day in year 1976 whether or not there was allocable surplus available for distribution amongst employees. Sec. 34, as it originally stood, provided that employers and employees could never into agreement with regard to payment of bonus on basis of formula other than that contemplated in Payment of Bonus Act. Sub-s. (3) of s. 34 which dealt with this subject matter read as follows: "Nothing contained in this Act shall be construed to preclude employees employed in any establishment or class of establishments from entering into agreement with their employer for granting them amount of bonus under formula which is different from that under this Act........" aforesaid provisions of s. 34 were modified by Ordinance, namely, Payment of Bonus (Amendment) Ordinance, 1975, w.e.f. 25th Sept., 1975. In terms of this Ordinance provisions of sub-s. (3) of s. 34 were omitted and new s. 34 was brought on statute book which read as follows: "Effect of laws and agreements inconsistent with Act Subject to provisions of s. 31-A, provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for time being in force or in terms of any award, agreement, settlement or contract of service." result of aforesaid amendment was that liberty granted by s. 34(3) earlier to employees and employers to enter into agreement for granting to employees bonus under formula which was different from that under Payment of Bonus Act was taken away. aforesaid amendment was modified again by Payment of Bonus (Amendment) Act, 1977 (43 of 1977) and amended s. 34 effective from 3rd Sept., 1977 read as below: "34. Employees and employers not to be precluded from entering into agreements for grant of bonus under different formula. Nothing contained in this Act shall be construed to preclude employees employed in any establishment or class of establishments from entering into agreement with their employer for granting them amount of bonus under formula which is different from that under this Act: Provided that no such agreement shall have effect unless it is entered into with previous approval of appropriate Government: Provided further that any such agreement were by employees relinquish their rights to receive minimum bonus under sub-s. (2A) of s. 10 shall be null and void in so far as it purports to deprive them of such right: Provided also that such employees shall not be entitled to be paid bonus in excess of (a) 8.33 per cent of salary or wage earned by them during accounting year if employer has no allocable surplus in accounting year or amount of such allocable surplus is only so much that, but for provisions of sub-s. (2A) of s. 10, it would entitle employees only to receive amount of bonus which is less than aforesaid percentage: or (b) twenty per cent of salary or wage earned by them during accounting year." It is aforesaid amended provisions of s. 34 which are applicable to accounting period presently under consideration. ITO was guided by law as it obtained prior to aforesaid amendment (43 of 1977). In this respect, ITO had obviously committed mistake. question of assessee's claim for deduction of bonus has to be examined in light of aforesaid amended provisions of s. 34 which restored right of employer and employee to come to agreement with regard to amount of bonus to be given to employees. Such agreement would be valid if it is entered into with previous approval of appropriate Government. In present case if would b e Government of West Bengal. From copy of Memorandum of Settlement it is not clear as to whether approval of State Govt. to aforesaid Memorandum of Settlement was given and if so when. Sub-cl. (e) of cl. 5 made it clear that agreement in question was subject to approval of Government. As to when said approval was given is not clear for many material on record. It would, therefore, be necessary to find out as to whether Govt. of West Bengal granted its approval to aforesaid agreement between employer and employees, If such agreement had received approval of Govt., it would be enforceable in law and bonus paid in terms of aforesaid agreement would be in accordance with provisions of payment of Bonus Act provided provisions of cl. (a) of third proviso to s. 34 of Payment of Bonus Act stand fulfilled. ITO will therefore have to further find out whether payment of bonus in present case in any manner offended provisions of cl. (a) of third proviso. If so, amount paid in excess of 8.33 per cent would have to be disallowed. If not, entire amount paid by assessee to its employees in terms of agreement entered into with employees and duly approved (if at all) by Government of West Bengal will b e allowed as deduction under s. 36(1)(ii) of IT Act, 1961. It would not be possible to say, in such situation, that payment of bonus was not in terms of Bonus Act and that so it was hit by provisions of cl. (ii) of sub-s. (1) of s. 36. For ascertaining correct facts to which aforesaid provisions Bonus Act may be applied, matter will have to be restored to ITO and accordingly we restore it. ITO will redetermine question after ascertaining facts as indicated above. We are not referring to orders of Tribunal relied on by either sides because present appeal is being disposed of accordance with law as it obtained in accounting period presently under consideration. For statistical purposes, we will treat departmental appeal as partly allowed. *** INCOME TAX OFFICER v. ATIABARI TEA CO. LTD.
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