JUDGMENT
Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1981-82 and 1984-85, the following questions of law have been referred to this court :
” 1. Whether the Tribunal was justified in holding that the ex gratia payment made by the assessee to its employees did not represent bonus paid under the Payment of Bonus Act, 1965 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Section 34 of the Payment of Bonus Act, 1965, would not apply to the memorandum of settlement dated 3rd November, 1980, and 24th September, 1983, under which ex gratia payment was made by the assessee-company to its employees ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the payment made by the assessee to its workmen as per memorandum of settlement Was ex gratia payment, not coming under the purview of the Payment of Bonus Act, 1965, and would be allowable as a deduction under Section 37 of the Income-tax Act, 1961?”
Shortly stated, the facts are that the assessee is a grower and manufacturer of tea. In the assessment year 1981-82, the Income-tax Officer disallowed the amount of Rs. 51,778 observing as under :
“Ex gratia :
The assessee had claimed a sum of Rs. 51,778 as payment towards ex gratia in addition to payment of bonus at 8.33 per cent. Obviously, the payment of ex gratia is in the nature of bonus and should be considered together. In this year, the assessee had incurred losses and, as such, no allocable surplus was available to the assessee. In view of this, the payment of ex gratia to the extent of Rs. 51,778 was in excess of bonus allowable under the relevant Bonus Act. Therefore, I am inclined to disallow this amount in the assessment. . . . Rs. 51,778.”
For the assessment year 1984-85, the Income-tax Officer disallowed the amount of Rs. 35,000 which the assessee claimed as ex gratia payment, as inadmissible expenditure.
2. On appeal, the Commissioner of Income-tax (Appeals) deleted the impugned additions.
3. In the Revenue’s appeal, the Tribunal held that the memoranda of settlement dated November 3, 1980, and September 24, 1983, provided for payment of ex gratia only and that what was paid according to them was not bonus and that Section 34 of the Payment of Bonus Act, 1965, was not applicable to the said memoranda. The Tribunal further held that the said ex gratia payments were allowable under Section 37.
4. The contention of the Revenue is that the amounts paid are not additional emoluments but bonus.
5. It is, therefore, necessary for us to consider the settlements which have been arrived at to find out whether the payment is additional wages or in fact bonus. The first agreement relevant for the assessment year 1981-82 is as follows :
“Terms of settlement.
In view of the assurance given by the workmen that they will maintain harmonious industrial relations with the management and to promote industrial peace for smooth working at the tea estate, it has been agreed between the management and the workers that the workers shall be paid an ex gratia at 8.33 per cent. worked out on the basis of wages earned by the workers during the calendar year 1979. Payment shall be made in the calendar year 1980 on or before November 30, 1980. Workers have also assured the management that they will try to improve the production in the tea estate.”
The agreement for the assessment year 1984-85 is as follows :
“With a view to bringing about an early and peaceful settlement of the issue of bonus in tea plantations, payable in 1983 for the accounting year 1982-83, the parties to the dispute held several rounds of bipartite discussions at Jalpaiguri and, thereafter, on September 22 and 23, 1983, in Calcutta. The representatives of the managements were not in a position to pay bonus at the rate demanded by the representatives of the plantation workers’ unions, and pleaded their inability to disburse more than the minimum bonus at 8.33 per cent. However, after protracted negotiations between the parties, the following settlement is arrived at on this day, September 24, 1983, on the following terms :
Terms of settlement : It is agreed by and between the parties that-
(a) for the sake of industrial peace and harmony and avoiding loss of production due to apprehended strikes and other forms of agitation on this issue, the managements will make some ad hoc ex gratia payment in addition to the statutory bonus payable to the workmen as per the provisions of the Payment of Bonus Act, 1965, as amended up to date :
(b) for the purpose of payment of statutory bonus, as well as ad hoc ex gratia amount, the tea estates in Dooars and Terai will be divided into six groups, as follows :
Group
Rate of bonus(%)
Ad hoc
ex gratia (%)
Total (%)
A
8.33
6.42
14.75
B
8.33
4.17
12.50
C
8.33
3.17
11.50
D
8.33
1.67
10.00
E
8.33
1.17
9.50
F
8.33
0.17
8.50
The names of the tea estates falling under each group are shown in annexure B.
(iii) In view of their acute financial distress and the various operational constraints under which they have to function, the tea estates in Darjeeling will be treated with special consideration and, for the purpose of payment of statutory bonus as well as ad hoc ex gratia amounts, will be divided into six groups as follows without creating any precedent :
Group
Bonus(%)
Ex gratia
Total (%)
A
8.33
3.67
12
B
8.33
2.17
10.50
C
8.33
1.42
9.75
D
8.33
0.42
8.75
E
8.33
0.17
8.50
F
8.33
Nil
8.33
The names of the tea estates falling under each group are shown in annexure ‘C’.
(iv) Estates facing genuine difficulties in the matter of payment may discuss the issue and evolve mutually acceptable solutions with the unions at the unit level :
(v) in view of the amicable settlement arrived at between the parties over the issue of bonus, the representatives of the Plantation Workers’ Union shall ensure the maintenance of industrial peace, harmony and discipline on the estates.”
On a consideration of the terms and conditions of the settlement, it is evident that, for the purpose of maintenance of industrial peace and maintaining production, the said memoranda of settlement had been arrived at, the first one between the assessee and its employees and the second one between the industry and the workmen of the tea industry.
6. The payment which has been agreed to be made in this case is in addition to the statutory bonus and not in the nature of profit-sharing bonus. Mere use of the expression “bonus” will not render it a bonus if it is otherwise clear that what is paid is not bonus but incentive wages. The Payment of Bonus Act does not prevent the payment of additional wages to the employees. The Tribunal has come to a finding on an interpretation of the agreement that, in this case, the payment was not made by way of bonus. In our view, the employer has to make such payment ex gratia or otherwise in view of the settlement made either by the employer or because of the settlement by and between the industry as a whole and the workmen of the industry. The employer cannot but fulfil the commitment in terms of such settlement. From the chart given hereinbefore, it will be evident that bonus had been provided separately under the terms and conditions of the settlement. The additional payment partakes of the character of additional wages or emoluments and these are in fact ex gratia and not bonus as it is understood.
7. In this connection, we may refer to the decision of a Division Bench of this court in I. T. Reference No. 35 of 1983 (CIT v. Shaw Wallace and Co. Ltd, [1991] 190 ITR 455), where the judgment was delivered on August 22, 1989. There the Division Bench of this court held that, if the payment is made in excess of 8.33 per cent. such payment will be allowed as deduction under Section 37 of the Act. In that case also, ex gratia payment was made to the employees for maintaining industrial peace and the facts are also similar. We are, therefore, of the view that, on the facts and in the circumstances of the case and oil an interpretation of the agreement in question, the Tribunal came to a correct conclusion. We, therefore, answer all the questions in this reference in the affirmative and in favour of the assessee.
8. There will be no order us to costs.
Shyamal Kumar Sen, J.
9. I agree.