JUDGMENT
K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-
tax Appellate Tribunal has referred the following question of law for the
decision of this court:
“Whether, on the facts and in the circumstances of the case, Section 36(1)(ii) is inapplicable to the case ?”
2. The respondent is a company. It is an assessee to income-tax. We are concerned with the assessment year 1978-79, for which the previous year ended on December 31, 1977. A sum of Rs. 2,90,180 was paid by way of bonus to the workers during the previous year relevant to this assessment year. According to the Income-tax Officer, the said amount related to the prior years 1976-77 and 1977-78 and so was not allowable as a deduction. In appeal, the Commissioner of Income-tax (Appeals) held that the liability to pay bonus for the earlier years 1975 and 1976 arose only as a result of the agreement dated August 23, 1977, and the amount has been correctly debited to the accounts of this year. He deleted the disallowance. In further appeal filed by the Revenue, the Appellate Tribunal found that the liability to pay bonus arose only on August 23, 1977, as a result of the settlement by the respondent/assessee with its employees. The bonus paid was contractual and so it is not hit by the first proviso to Section 36(1)(ii) of the Income-tax Act. The appeal filed by the Revenue was dismissed. It is thereafter at the instance of the Revenue, that the question of law formulated herein above has been referred for the decision of this court.
3. We heard counsel for the Revenue, Mr. P.K.R. Menon, as also counsel for the respondent/assessee. To what extent the bonus paid to the employees is deductible as revenue expenditure has been the subject-matter of more than one Bench decision of this court. This court had occasion to consider the impact of Section 36(1)(ii) of the Act in the said decisions. The decisions are : CIT v. P. Alikunju M.A. Nazir Cashew Industries [1987] 166 ITR 611 ; CIT v. Kumar Industries [1990] 183 ITR 156 ; CIT v. Kerala Agro Industries Corporation [1990] 183 ITR 197 and an unreported judgment of this court in Income-tax Reference No. 13 of 1987, dated June 6, 1990–since reported in CIT v. Travancore Titanium Products Ltd. [1990] 186 ITR 112. Ordinarily, a payment envisaged by the Payment of Bonus Act can be claimed as a deduction. Amounts paid over and above the amount payable under the Act can be claimed as deduction under Section 36(1)(ii) of the Act provided the following conditions are fulfilled. The amount should be 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. The Appellate Tribunal has failed to evaluate the question that arose before it in the light of the principles laid down by the Bench decisions of this court. The Appellate Tribunal was not justified in law in holding that the entire amount paid by the assessee is a permissible deduction without specifically finding that the provisions of Section 36(1)(ii) of the Act as laid down by the decisions of this court have been satisfied in the instant case. Even if the bonus paid is a contractual one, it should stand the scrutiny of Section 36(1)(ii) of the Act. This aspect was not borne in mind by the Income-tax Appellate Tribunal. The decision of the Appellate Tribunal is not satisfactory.
4. Therefore, in the light of the earlier Bench decisions of this court, we decline to answer the question referred to this court by the Income-tax Appellate Tribunal, but, at the same time, we direct the Appellate Tribunal to restore the appeal to file and re-evaluate the entire matter in the light of the Bench decisions referred to hereinabove. It is for the Income-tax Appellate Tribunal to consider the matter in the light of the above Bench decisions and if it considers that it will be just and proper, in the circumstances of the case, that the matter is re-evaluated by the assessing authority, the Tribunal will be free to make a remit of the matter to the assessing authority for that purpose.
5. The reference is disposed of as above.
6. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.