Ex-gratia Bonus was allowable u/s 37(1) as Business Expenditure of Indian Express

Indian Express Newspapers (Bombay) Ltd. Vs CIT (Bombay High Court)

Conclusion: Exgratia bonus paid to the employees over and above the eligible bonus under the Payment of Bonus Act was allowable as expenditure under Section 37 (1).

Held: AO found that assessee had paid exgratia bonus amounting in all to Rs.16,28,258/-. He negatived assessee’s claim of deduction in view of first proviso to Section 36(1)(ii) of the Act and observed that the disallowances was subject to rectification and in case it was shown that assessee had allocable surplus to pay bonus of 8.33% he would revise the assessment order. On appeal, the CIT(A) held that the impugned amount was an allowable expenditure under Section 37(1).  Appellate Tribunal approved that exgratia bonus paid to the employees over and above the eligible bonus under the Payment of Bonus Act was not allowable as expenditure under Section 37 (1). It was held that following the decision in the case of CIT v. Rajaram Bandekar and Sons (Shipping) P. Ltd. (1999) 237 ITR 628 (Bom) and CIT v. Raghuvanshi Mills Ltd. (Income-tax Reference No. 169 of 1987) the ITAT was not right in law in holding that exgratia bonus paid to the employees over and above the eligible bonus under the Payment of Bonus Act was not allowable as expenditure under Section 37 (1).

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. On 16^th September 2004 the following two substantial questions of law were framed :

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