October 2008
Business expenditure/bonus : S. 37(1) and S. 36(1)(ii) : ‘Good work reward’ paid to employees, not dependent on profit/loss : does not constitute ‘bonus’ u/s. 36(1)(ii) : Allowable as normal business expenditure u/s.37(1)
By K. B. Bhujle, Advocate
Reading Time 2 mins
New Page 2
2 Business expenditure/bonus : S. 37(1) and
S. 36(1)(ii) of Income-tax Act, 1961 : ‘Good work reward’ paid to employees, not
dependent on profit/loss : Does not constitute ‘bonus’ u/s.36(1)(ii) : Allowable
as normal business expenditure u/s.37(1).
[Shriram Pistons & Rings Ltd. v. CIT, 171 Taxman 81
(Del.)]
The assessee had claimed the deduction of the ‘good work
reward’ paid to the employees as business expenditure u/s.37(1) of the
Income-tax Act, 1961. The Tribunal considered as to whether it constitutes
‘bonus’ within the meaning of S. 36(1)(ii) of the Act. The Tribunal held that it
does not constitute bonus.
In reference, the Delhi High Court upheld the decision of the
Tribunal and held as under :
“(i) There is nothing to suggest that the ‘good work
reward’ given by the assessee to its employees has any relation to the profits
that the assessee may or may not make. It appears from the order of the
Tribunal that it has relation to good work that is done by the employee during
the course of his employment and that at the end of the financial year on the
recommendation of a senior officer of the assessee, the reward is given to the
employee. Consequently, the ‘good work reward’ cannot fall within the ambit of
S. 36(1)(ii) of the Act as contended by the Revenue.
(ii) The ‘good work reward’ is allowable as business
expenditure u/s.37(1) of the Act.”
