Identical Substantial Question Of Law Was Considered By Adivision Bench Of This Court In Cit v. Lakshmi Vilas Bank Ltd.,[T.c.(A)

IN THE HIGH COURT OF JUDICATURE AT MADRAS The Honourable Mr.Justice T.S.SIVAGNANAMand The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP T.C.A.No.611 of 2014 Commissioner of Income Tax,Chennai. ...Appellant The Karur Vysya Bank Ltd.,Erode Road, Karur-639 002. ...Respondent Appeal under Section 260A of the Income Tax Act, 1961against the order dated 10.01.2014 made in M.P.No.205/Mds/2013in I.T.A.No.931/Mds/2011 on the file of the Income Tax AppellateTribunal 'A' Bench, Chennai for the assessment year 2006-07. Against the order of the Commissioner of Income Tax(Appeals) Tiruchirappalli dated 30.03.2011 in IT.A.No. 379/08-09and against the order of the Additional Commissioner of IncomeTax, Range-I, Trichy dated 31.12.2008 in PAN No. forthe Assessment year 2006-2007. JUDGMENT This appeal, by the appellant/Revenue, filed under Section260A of the Income Tax Act, 1961, is directed against the orderdated10.01.2014madeinM.P.No.205/Mds/2013inI.T.A.No.931/Mds/2011 on the file of the Income Tax AppellateTribunal 'A' Bench, Chennai for the assessment year 2006-07. 2.The appeal was admitted on 04.09.2014, on the followingsubstantial question of law:- https://hcservices.ecourts.gov.in/hcservices/ “Whether in the facts and circumstances ofthe case, the Tribunal was right in holding thatthe assessee is entitled to deduction in respectof ex-gratia payment made to employees when suchpayments cannot be treated as business expediencyor legal requirement allowable under Section 37(1) of the Act?” 3.Identical substantial question of law was considered by aDivision Bench of this Court in CIT vs. Lakshmi Vilas Bank Ltd.,[T.C.(A) No.897 of 2013] to which, one of us (TSSJ) was a partyand by judgment dated 16.04.2014, the appeal filed by theRevenue was dismissed. The relevant paragraphs of the judgmentread as follows:- “2. While completing the assessment underSection 143(3) of the Income Tax Act, 1961, theAssessing Officer found that the assessee hadclaimed deduction on the ex-gratia payment madeto employees who were not covered by theprovisions of the Payment of Bonus Act. Theassessee contended that it was a type ofincentive given to those employees, who did notfall under the provisions of the Payment of BonusAct. The claim of the assessee was rejectedholding that the same could not be treated as onefalling under business expediency referred tounder Section 37(1) of the Income Tax Act, 1961specifically excluding the expenditure coveredunder Sections 32 to 36 of the Act and more so,inparticular,whenSection36(1)(ii)specifically deals with payment of bonus as ahead of deduction. The Assessing Officer heldthat the assessee was not entitled to have thededuction considered under Section 37(1) of theAct. Aggrieved by this, the assessee went onappeal before the Commissioner of Income Tax(Appeals), who confirmed the order of theAssessing Officer. Hence, the assessee went onfurther appeal before the Income Tax AppellateTribunal. The Tribunal pointed out that thepayment in the instant case was made to thoseemployees who did not fall within the purview ofthe Payment of Bonus Act. The provisions underSection 36(1)(ii) of the Income Tax Act, 1961covered specific instances stated therein andthat ex-gratia payment made to employees in excess of statutory limit was considered as ahead of deduction. In this the Tribunal referredto the decision of the Calcutta High Courtreported in (1994) 208 ITR 1002(Cal) [CIT vs.National Engineering Industries Ltd.]. TheTribunal further considered that the payment wasa matter of business expediency. Even assumingfor a moment that the amount paid was in excessof what is prescribed in the Payment of BonusAct, the same would merit consideration as adeduction and that being the case, the Tribunalheld that the payment made by the assessee to itsemployees who were not covered under theprovisions of the Payment of Bonus Act was in thenature of exgratia payment as an incentive to theemployees to be considered for deduction underthe provisions of Section 37(1) of the Income TaxAct,1961. 3. Aggrieved by this view of the Tribunal,the present appeal has been preferred by theRevenue. 4. We agree with the view expressed by theTribunal that there being no restriction orprohibition under Section 37 of the Income TaxAct, 1961 on the claim for deduction on the ex-gratia payment given in the form of an incentiveto the workman out of business expediency and thepayment being a business expenditure, theRevenue's case deserves to be dismissed at theadmission stage itself. 5. In the result, the Tax Case (Appeal) isdismissed. No costs. Consequently, the connectedmiscellaneous petition is closed.” 4.In the aforementioned decision, the Division Benchreferred to the decision of the Calcutta High Court in CIT vs.National Engineering Industries Ltd. reported in (1994) 208 ITR1002 (Cal), which decision was followed by the Tribunal in theimpugned order. Therefore, we find that the substantialquestion of law, raised in this appeal, has to be answeredagainst the Revenue by following the above decision. 5.In the result, the tax case appeal is dismissed and thesubstantial question of law is answered against the Revenue. Nocosts. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant Registrar abr To 1. The Income Tax Appellate Tribunal 'A' Bench, Chennai. Chennai. 2. The Commissioner of Income Tax(Appeals), Tiruchirappalli. Tiruchirappalli. 3. The Additional Commissioner of Income Tax, Range-I, Trichy. Range-I, Trichy. 4. The Commissioner of Income Tax, Chennai. Chennai. +1 cc to Mr.M.Swaminathan,Advocate Sr.No.38934+1 cc to M/s.Subbaraya Aiyar,Advocate Sr.No.38941 T.C.A.No.611 of 2014 AJS[co]NSK 01/09/2021