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C.I.T. versus M/S C.S.CO. LTD.

High Court of Judicature at Allahabad

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C.I.T. v. M/S C.S.Co. Ltd. - INCOME TAX REFERENCE No. 61 of 1990 [2005] RD-AH 861 (24 March 2005)


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I.T.R. 61 of 1990


Commissioner of Income Tax, Kanpur Vs. M/s.

Champaran Sugar Co. Ltd. Kanpur.


Hon'ble R.K.Agarwal, J.

Hon'ble Vikram Nath, J.

(Delivered by Hon. R.K.Agarwal, J)

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law under section 256 (1) of the Income Tax Act, 1961 ( here in after 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.45,578/- 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.?"

Briefly stated the facts giving rise to the present case are as follows:-

The reference relates to the assessment year 1978-79. 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.45,578/- 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 Commissioner of Income Tax (Appeals) , Kanpur. The Tribunal has set aside the disallowance of the above sum on the finding that the payment of  bonus of Rs.45,578/- cannot be regarded as being more than what was reasonably required to be paid.

Heard Shri Dhananjai Awasthi, the learned standing counsel for the department and Shri R.S. Agrawal for the assessee.  The learned standing counsel submitted that a sum of Rs.45,578/- 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 and Sons  vs. C.I.T.  (1977) 108 ITR 358. In contra, the learned counsel for the respondent assessee submitted that reasonableness of the payment of bonus is to be determined with reference to the principle of commercial expendiency which is to be viewed in the light of the requirements of the business, services rendered by the persons concerned. He placed reliance upon a  judgment of the Madras High Court in the case of  CIT vs. Lakshmi Mills Co. Limited  (1977) 204 ITR 81.

The Tribunal while allowing the payment of bonus to the senior members of the employees as admissible expenditure had placed reliance upon its earlier order in the case of the same assessee for the assessment year 1976- 77 .The order for the year 1976- 77 was the subject matter of reference in I.T.R.No.20 of 1990 which has been decided by this Court on 14-2-2005. It has been held that the Tribunal was not legally correct in allowing the payment of bonus to the senior members of the employees who were not entitled to receive the bonus under the provisions of Payment of Bonus Act as admissible expenditure under the Income Tax Act.

Respectfully following the aforesaid judgment we answer the above question in negative i.e. in favour of the Revenue and against the assessee. There shall be however, no order as to costs.

Dated: 24th March.2005.



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