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 ? 3 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 the statutory limit and claimed deduction under Section 36(1)(ii) of the Act. As already noticed in the present Appeal, the Revenue Department felt aggrieved in relation to the relief granted by Commissioner of Income Tax (Appeals) vide order dated 26th September, 1990 which accepted the contention of the assessee and permitted the deductions. The contention raised on behalf of the Revenue Department before the Tribunal and before this Court as well is that, if the amount is not allowable under Section 36 then the amount paid over and above the statutory limit is also not allowable under Section 37 of the Act and reliance was placed upon a decision of Division Bench of this Court in the case of Commissioner of Income Tax Vs Rajaram Bandekar and Sons (Shipping) Pvt. Ltd., [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.” 5 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 business or profession. The determination of these conditions should lead to bonus being reasonable, and therefore, entitled to deduction in terms of Second Proviso to Section 36(1)(ii) of the Act. In the present case, the assessee had been paying bonus for the last 10 years otherwise in excess of the Bonus Act and this had become a practice and Commissioner of Income Tax (Appeals) as well as the Tribunal has recorded the finding that such bonus was payable as a general practice followed in similar business or profession. 8 7. In the case of Workmen of Kettlewell Bullen and Co. Ltd. Vs Kettlewell Bullen and Co. Ltd., (1994) 2 SCC 357, the Supreme Court, while considering payment of customary bonus, held that where the bonus at a uniform rate of 10.5 per cent of salary or wages was paid uniformly for an unbroken period of nine years from 1965 to 1973, which was a sufficiently long period, the Tribunal could have reasonably drawn an inference that the said bonus was customary or traditional bonus on the occasion of pooja festivals. 8. The finding in question being a primary finding of fact, there is no reason for us to interfere with the impugned order. The Appeal is, therefore, dismissed with no order as to costs. CHIEF JUSTICE N.A. BRITTO, J