High Court Of Bombay
CIT vs. Mafatlal Fine Spinning & Manufacturing Co. Ltd.
Sections 36(1)(ii), 36(1)(iv), 80G
Asst. Year 1978-79, 1979-80
S.H. Kapadia & J.P. Devadhar, JJ.
IT Ref. No. 597 of 1987
5th February, 2003
Counsel Appeared
R.V. Desai with P.S. Jetley i/b K.B. Rao, for the Revenue : None, for the Assessee
JUDGMENT
J.P. Devadhar, J. :
At the instance of the CIT, Bombay City-II, Bombay, the Tribunal has referred following questions for the opinion of this Court under s. 256(1) of the IT Act, 1961.
Asst. yr. 1978-79 :
Question No. 1 : “Whether, on the facts and circumstances of the case, initial contribution by the assessee-company of Rs. 1,28,228 to superannuation fund was an allowable deduction for the asst. yr. 1978-79 ?”
Asst. yr. 1979-80 :
Question No. 2 : “Whether, on the facts and circumstances of the case, the assessee was entitled to deduction of Rs. 22,81,847 which was paid by the assessee- company to its employees over and above the bonus payable under the Payment of Bonus Act for the asst. yr. 1979-80 ?”
Asst. yrs. 1978-79 and 1979-80 :
Question No. 3 : “Whether, on the facts and circumstances of the case, the limit prescribed under s. 80G(4) was not confined to 50 per cent of 10 per cent, of gross total income and the said section only prescribed the ceiling for deduction for the asst. yrs 1978-79 and 1979-80 ?”
Though served, none have appeared for the assessee-respondent. As regards question No. 1 is concerned, learned counsel appearing for the Revenue, fairly stated that the issue is covered by the decision of the apex Court in the case of CIT vs. Sirpur Paper Mills (1999) 153 CTR (SC) 89 : (1999) 237 ITR 41 (SC) in favour of the assessee. Accordingly, we answer question No. 1 in the affirmative and in favour of the assessee. As regards question No. 2 is concerned, the assessee had made ex gratia payment of Rs. 22,81,847 as additional bonus to the employees who were covered by the payment of Bonus Act. The ITO held that in view of the first proviso to s. 36(1)(ii) liability of the assessee was only to the extent admissible under the payment of Bonus Act, 1965, and, therefore, the said amount of Rs. 22,81,847 given to the textile mill workers over and above the statutory bonus was not liable either under s. 36(1)(ii) or under s. 37(1) of the IT Act. On appeal, the CIT(A) held that the said amount was liable to be deducted as necessary business expenditure incurred in the interest of business expediency and for coming to terms with the Rashtriya Mazdoor Sangh. On further appeal, the Tribunal held that the additional. payment of bonus was on account of the agreement between the mills owner’s association and the employees union and hence, deductible under s. 36 (1)(ii). The Tribunal further held that the assessee’s case was not covered by the second proviso to s. 36(1)(ii). Mr. Desai, learned senior counsel appearing on behalf of the Revenue, relied upon judgment of this Court in the case of CIT vs. Rajaram Bandekar & Sons (Shipping) (P) Ltd. (1999) 153 CTR (Bom) 52 : (1999) 237 ITR 628 (Bom), and submitted that ex gratia payment to the employees by way of bonus for services rendered is not allowable under the general provisions of s. 37 of the IT Act, 1961; however, if the assessee was able to satisfy the conditions laid down in the second proviso to s. 36(1)(ii), it might be allowed as deduction under that section.
In the instant case, there is no material to establish that the conditions set out in the second proviso of s. 36(1)(ii) were satisfied. The assessee has merely produced an agreement dt. 17th Oct., 1978, between the mill owner’s association, Bombay, and the employees union. There is nothing on record to show that the said agreement was binding on the assessee or to show that the ex gratia payment was reasonable or in accordance with any practice prevailing at the relevant time. In this view of the matter, we answer question No. 2 in the negative and in favour of the Revenue. As regards question No. 3 is concerned, Mr. R.V. Desai, learned senior counsel appearing on behalf of the Revenue, relied upon the decision of this Court in the case of CIT vs. New Shorrock Spg. and Mfg. Co. Ltd. (1995) 123 CTR (Bom) 297 : (1995) 212 ITR 355 (Bom), wherein it is held that the ceiling specified in sub-s. (4) of s. 80G applies to the aggregate of the sums in respect of which deduction is claimed and not to the amount of deduction allowed under sub-s. (1) of s. 80G of the IT Act. In the present case, the Tribunal following the decision of the Andhra Pradesh High Court in the case of Hyderabad Race Club vs. Addl. CIT (1979) 8 CTR (AP) 280 : (1979) 120 ITR 185 (AP), held that the ceiling laid down by sub-s. (4) was applicable not to the aggregate amount in respect of which the deduction was claimed but to the amount deductible under sub-s. (1) of s.
80G. However, this Court in the case of CIT vs. New Shorrock Spg. and Mfg. Co. Ltd. (supra) has disagreed with the decision of the Andhra Pradesh High Court in the case of Hyderabad Race Club (supra) and held that the ceiling specified in sub-s. (4) applies to the aggregate of the sums in respect of which deduction is claimed and not to the amount of deduction allowed under sub-s. (1) which has to be computed in the manner specified therein. In this view of the matter, we answer question No. 3 in the negative and in favour of the Revenue. To sum up, we answer :
Question No. 1 : In the affirmative and in favour of the assessee.
Question No. 2 : In the negative and in favour of the Revenue.
Question No. 3 : In the negative and in favour of the Revenue Accordingly, the reference is disposed of in above terms, with no order as to costs.
[Citation : 263 ITR 140]
