JUDGMENT
K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal referred the following question of law for the decision of this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of an amount of Rs. 9,26,448 being ex gratia payment made in excess of the statutory limit of 20 per cent. bonus ?”
2. The respondent is a public limited company. We are concerned with the assessment year 1979-80. For the previous year ended on December 31, 1978, the assessee claimed deduction of an amount, of Rs. 9,26,448 representing ex gratia payment relating to the accounting year 1977. The Income-tax Officer held that the amount so claimed was bonus paid by the assessee. He also held that it did not relate to the previous year. The Income-tax Officer took the view that the provisions of the Payment of Bonus Act applied and so the assessee could not pay more than 20 per cent. as bonus. Probably, in order to get over the difficulty, the payment was called ex gratia payment. Holding that the payment was bonus, the Income-tax Officer held that it is hit by the provisions of Section 36(1)(ii) of the Act. In the appeal filed by the assessee, the Commissioner of Income-tax (Appeals) held that the payment in the instant case was made as per agreement dated September 11, 1978, between the management and the representatives of the workmen and in so far as the genuineness of the payment was not disputed, and it was paid for services rendered, the Commissioner permitted deduction of the amount. In the appeal filed by the Revenue before the Tribunal, it was held that similar ex gratia payments made by the assessee in earlier assessment years have been allowed by the Tribunal. Following the reasoning contained in the earlier orders, the Tribunal held that the assessee would be entitled to deduction of Rs. 9,26,448. It is thereafter at the instance of the Revenue that the question of law formulated hereinabove has been referred for the decision of this court.
3. We heard counsel. To what extent the bonus paid to the employees is deductible as revenue expenditure in the light of the provisions of the Income-tax Act, particularly Section 36(1)(ii) of the Act, has been exhaustively dealt with in the decision in CIT v. P. Alikunju M.A. Nazir, Cashew Industries [1987] 166 ITR 611 (Ker). The said decision has been followed in subsequent cases, viz., CIT v. Kumar Industries [1990] 183 ITR 156 (Ker) and CIT v. Kerala Agro Industries Corporation [1990] 183 ITR 197 (Ker). 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 Payment of Bonus Act can be claimed as a deduction under Section 36(1)(ii) 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 issue in the light of the principles laid down by the above Bench decision of this court. We are of the view that the Appellate Tribunal was in error in deleting the addition of Rs. 9,26,448 representing ex gratia payment in excess of the statutory limit of 20 per cent. bonus. We answer the question referred to us in the negative, but at the same time, direct the Income-tax Appellate Tribunal to restore the appeal to file and re-evaluate the entire matter in the light of the Bench decision in CIT v. P. Alikunju, M.A. Nazir, Cashew Industries [1987] 166 ITR 611 and the subsequent decisions in CIT v. Kumar Industries [1990] 183 ITR 156 and CIT v. Kerala Agro Industries Corporation [1990] 183 ITR 197. If the Income-tax Appellate Tribunal 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 remit the matter to the assessing authority.
4. A copy of this judgment under the seal of this court and the signature of the Registrar shall bo forwarded to the Income-tax Appellate Tribunal, Cochin Bench.