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February 2009

Ss. 36(1)(ii) and 37(1) : Ex-gratia payment over and above statutory limits prescribed under Payment of Bonus Act, 1965, is allowable as business expenditure.

By K. B. Bhujle, Advocate
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45 Business expenditure : Bonus : S.
36(1)(ii) and S. 37(1) of Income-tax Act, 1961 : A.Y. 1993-94 : Ex gratia
payment over and above statutory limits prescribed under the Payment of Bonus
Act, 1965, is allowable as business expenditure.


[CIT v. Maina Ore Transport (P) Ltd., 218 CTR 653 (Bom.)]

In the A.Y. 1993-94 the assessee had made payment of ex
gratia in the sum of Rs.2,37,702 to its employees in excess of the limit of
8.33% prescribed under the Payment of Bonus Act. The assessee had claimed the
deduction of the said ex gratia payment as business expenditure. The AO
disallowed the claim on the ground that it is in excess of 8.33% maximum
statutory limit under the Act. The CIT(A) allowed the deduction holding that the
amount was paid to maintain healthy relations and industrial peace. The Tribunal
confirmed the decision of the CIT(A).

 

On reference by the Revenue, the Bombay High Court upheld the
decision of the Tribunal and held as under :

“Ex gratia payment in excess of the limits prescribed under
the Payment of Bonus Act, 1965, is allowable as business expenditure, although
the payment did not cover contractual payment or customary payment.”

 


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