Deputy Commissioner Of Income Taxspecial Range I, Coimbatore v. M/S.sri Shanmugavel Mills Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18-07-2011 THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANANDTHE HONOURABLE MR.JUSTICE M.JAICHANDREN Deputy Commissioner of Income TaxSpecial Range I, Coimbatore. .. Appellant. Versus M/s.Sri Shanmugavel Mills Ltd.1, Venkatachalapuram Extension,Mangalam Road, Coimbatore... Respondent. Prayer: Appeal filed against the order of the Income Tax AppellateTribunal "B" Bench, dated 16.3.2001, made in I.T.A No.1769/Mds/91,under Section 260 A of the Income Tax Act, 1961 against the order ofthe commissioner of Income Tax [Appeals], Coimbatore and made in I.T.[A] No.357-C/91-92 dated 27.6.1991, and against the order of the Assistant Commissioner of I.T.CompanyCircle I, Coimbatore 18 and made in 502-CY-2319/CO.I order dated31.03.90 For Appellant: Mr.J.Naresh Kumar For Respondent:Mr.R.Vijayaraghavan JUDGMENT(Judgment of the Court was made by M.JAICHANDREN,J.) 2. The assessee is a closely held company. It filed the returnsfor the assessment year 1990-1991, on 24.12.1990, declaring a totalincome of Rs.36,63,900/- and a sum of Rs.32,72,274/-, as per thecomputation, under Section 115J of the Income Tax Act, 1961. 3. The assessee had made a provision for labour welfare expenses,amounting to Rs.9,33,430/-. The said amount was disallowed by theAssessing Officer on the ground that it was a mere provision, andthat such a provision had been disallowed during the previous https://hcservices.ecourts.gov.in/hcservices/ assessment year too. 4. Aggrieved by the orders passed by the Assessing Officer, theassessee filed an appeal before the Commissioner of Income Tax(Appeals), Coimbatore. The assessee contended that the payment inquestion was not in the nature of bonus, but an incentive based onthe performance of the workers. The workers had been poorly paid andsince, no increments were allowed and only the minimum bonus of 8.33%ws paid to them. 20% of their wages was given to them as anincentive, in lieu of the increments and higher bonus. As such, theamounts paid to the workers formed part of their wages or salary. Theactual payments made in the subsequent year was Rs.10,25,069/-, whichwas, in fact, in excess of the provision made. Further, the nature ofthe claim was already considered in favour of the assessee in theappeal relating to the assessment year 1987-1988 vide the order ofCommissioner of Income Tax Appeals, dated 16.6.1990.. In suchcircumstances, the deduction claimed by the assessee should beallowed. 5. The Commissioner of Income Tax (Appeals), quoting the earlierorder, relating to the assessment year 1987-1988, dated 16.6.1990,allowed the appeal filed by the assessee. He took the view that therewere no changes in the facts, during the present assessment year, fortaking a different view in the matter. Thus reiterating the earlierview that what was being paid was not bonus or anything in the guiseof bonus, but the incentives was paid to the workers, as a part oftheir salary or wages, based on their performance, in lieu of theannual increments in salary and that the actual payment made in thesubsequent year was more than what had been provided for theCommissioner of Income Tax Appeals held that the provisions ofSection 43B(c) would not apply to the disputed payments. Accordingly,the disallowance of Rs.9,33,430/- was deleted. 6. Aggrieved by the said order of the Commissioner of Income Tax(Appeals), dated 27.6.1991, the Revenue filed an appeal before theIncome Tax Appellate Tribunal, Chennai Bench. The only ground raisedby the Department, in the said appeal, was that the Commissioner ofIncome Tax (Appeals) erred in allowing a sum of Rs.9,33,430/-, as aprovision for labour welfare expenses, when a sum of Rs.10,25,069/-had been, actually, spent during the subsequent year. 6. Aggrieved by the said order of the Commissioner of Income Tax(Appeals), dated 27.6.1991, the Revenue filed an appeal before theIncome Tax Appellate Tribunal, Chennai Bench. The only ground raisedby the Department, in the said appeal, was that the Commissioner ofIncome Tax (Appeals) erred in allowing a sum of Rs.9,33,430/-, as aprovision for labour welfare expenses, when a sum of Rs.10,25,069/-had been, actually, spent during the subsequent year. 7. The Tribunal dismissed the appeal filed by the Revenue. On aperusal of the materials available on record the Tribunal found that,for the assessment year 1988-1989, the department had filed an appealbefore the Tribunal, on an identical issue, challenging the order ofthe Commissioner of Income Tax (Appeals), in I.T.A.No.431/Mds/1992,relating to the same assessee. By its order, dated 29.11.2000, aftera careful consideration of the facts and circumstances of the case,the Tribunal had decided the issue in favour of the assessee, https://hcservices.ecourts.gov.in/hcservices/ confirming the order of the Commissioner of Income Tax (Appeals) infavour of the assessee. As the facts and circumstances of the presentcase was similar to the one decided by the Tribunal, the appeal filedby the Revenue stood rejected. Aggrieved by the order of theTribunal, dated 16.3.2001, the Revenue has filed the present appealbefore this Court. 8. Learned standing counsel appearing on behalf of the Revenuecontended that the Tribunal erred in law in not considering the factthat the provision made by the assessee was not actually for welfareexpenses, but for bonus only and that the actual payment made in thesubsequent year was more than what had been provided for. Hence,Tribunal should have seen that Section 43B(c) of the Income Tax Act,1961, would apply to the facts of the present case and therebyrejected the assessee's case. 9. On the submissions made on behalf of the appellant, as well asthe respondent, and on a perusal of the records available, it wasfound that, the Department had filed an appeal before the Tribunal,on an identical issue, for the assessment year 1988-1989, in respectof the same assessee. The said issue was decided in favour of theassessee. It is noted that a similar provision was also made by theassessee, for the assessment year 1990-1991. Consistently it wasfound that what was being paid to the workers was not bonus or anyother payment in the guise of bonus. On the other hand incentives waspaid, based on the performance of the workers, in lieu of theincrease in salary and as part of the salary or wages. 10. The facts of the case, thus show that the provisions made wasnot for payment of bonus but payment, as part of the wages and as anincentive for the performance of the workers. It is also noted thatan amount of Rs.10,25,069/- was paid to the workers, in thesubsequent year, in excess of the provision. Considering the factualfindings that Rs.9,33,430/- was an incentive payment for theperformance of the workers, we do not find any reason to differ fromthe findings of the Appellate Tribunal. Hence, the Tax Case Appealstands dismissed. No costs. csh Sub Asst. Registrar. https://hcservices.ecourts.gov.in/hcservices/ To 1. The Income Tax Appellate Tribunal,B Bench, Chennai. 2 The Commissioner of Income Tax[A],Coimbatore. 3. The Assistant Commissioner of Income Tax,Company Circle-I, Coimbatore-18. 4. The Asst. Registrar, Income Tax Appellate Tribunal, 'A' Bench,Rajaji Bhavan, Besant Nagar, Chennai 90. 1 cc To Mr.R.Vijayaraghavan, Advocate Sr 42709 1 cc To MrJ.Naresh Kumar, Standing counsel for Income Tax, Sr 42738 Tax Case (Appeal) No.695 of 2004 [co]gp/26.9.