2003 PLP (Trib (PTD)

3. Mr. Shaukat Mian. Rs. 50,000

4. Mr. Muhammad Zafar. Rs. 46,000 Total Rs.2,04,000 Learned counsel has further contended that the Golden Hand Shake Scheme was offered to all the employees under agreement with C.B.A. and the assessee's Company has no method to stop the useful employees from taking benefit of the Scheme. The assessee Company was, therefore, justified to re-employee four of the useful skilled persons, as the Company needed the services of these persons on commercial expediency and their re-employment was with new service and they are not entitled to any benefits of the previous service. According to the learned counsel if the department has any doubt of collusion, it is to be restricted to payment of Rs.2,04,000 to these persons and the disallowance of Rs.6,38,231 is in any way unjustified and can be restricted to the payment of Rs.2,04,000 made to the four employees under Golden Hand Shake Scheme. Regarding the bonus, Mr. Javed Zakaria has argued that the bonus was paid under the agreement with C.B.A. and was contractual liability. According to him, the agreement arrived with C.B.A. by the assessee's Company under section 30 of the Industrial Relations Ordinance, 1969 is binding and its incontravention is punishable under section 54 of the Industrial Relations Ordinance, 1969 and the assessee had no option in respect of the payment of the bonus. Regarding co-relation of bonus with profit of the Company, the learned counsel has submitted that all the three conditions provided in section 23(1) (viii) (b) of the Income Tax Ordinance are cumulative and are to be considered together. He has in this respect placed reliance on the case of CIT v. Paracha Textile Mills reported as (1973) 28 Tax 155 (H.C. Karachi). The learned counsel has also filed statement showing bonus paid during the year under assessment as compared with the previous three assessment years and has submitted that the bonus paid during the year under consideration is in accordance with the history of the case. The statement filed by the assessee is reproduced hereunder:

1992-93 1991-92 1990-91 1989-90 Profit 23,28,050 4,16,594 (30,45,487) 7,75,341 Bonus paid 13,39,052 14,08,108 13,69,662. 14,39,464 Bonus allowed 6,69,526 Allowed in Allowed in Allowed in full full full

5. We have heard the learned representatives of both the parties and have also perused the impugned order of the learned CIT(A), the assessment order, the case-law referred by the learned counsel for the assessee and the other relevant documents placed before us by both the learned representatives. Regarding the issue of Golden Hand Shake Scheme, we have observed that the Assessing Officer has made a factual mistake while making a disallowance of Rs.6,38,231 regarding the eight employees and as the learned counsel for the assessee has contended that only four employees have been re-employed, therefore, the disallowance if any should have to be only restricted to the payment of Rs.2,04,000 and the learned CIT(A) has deleted the disallowance without any justification. We, therefore, find it reasonable to vacate the impugned order of the learned CIT(A) on this issue and the assessment order is set aside on this issue with the direction that the copy of the Golden Hand Shake Scheme may be obtained and if the Scheme was available to all the employees then total claim may be allowed and in the case of scheme not available to all the employees then the addition under this head may be restricted to Rs.2,04,000, the payment made to the four employees on, account of Golden Hand Shake Scheme.

6. Regarding the issue of bonus, we are of the view that the CIT(A) has rightly observed that the Assessing Authority was not justified in disallowing the claim of bonus, both for the factory workers and office employees as it was paid in accordance with the terms of settlement with C.B.A., dated 22-10-1998 under section 30(4) of the Industrial Relations Ordinance, 1969 read with Rule 69 "of the Industrial Relations Rules, 1973 the payment being statutory obligations and the assessee in case of failure to pay was punishable with penalty and imprisonment under section 54 of the said Ordinance meaning thereby that- the failure to make payment would result. in the closure of business due to strike by the labour. Regarding the co-relation of bonus with profit,-we find force in the arguments of the learned counsel that the three conditions as laid down in section 23(1) (viii) (b) of the Income Tax Ordinance are cumulative and are to be considered together. For the facility provision of section 23(1) (viii) (b) are reproduced hereunder:

"any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission: Provided that the amount of the bonus or commission is a reasonable amount with reference to:

(a) the pay of the employee and tile conditions of his service; (b) the profits of the business, or profession for the year in question; and (c) the general practice in similar business or profession". It is evident from the above section that in condition `b' word "and" has been used which clearly indicate the intention of the Legislature for all the three conditions being cumulative. We have also perused the judgment of the Hon'ble High Court of Sindh referred by the learned counsel for the assessee reported as 1973 PTD 238 wherein, it has been held as follows:

"Held, that the existence of the profits is not the only factor to be considered in coming to the conclusion whether or not bonus paid was a deductible item of expenditure and it is the cumulative effect of all. the three considerations which should govern the determination of reasonableness under that clause and, therefore, the test of commercial expediency is strictly germane to the consideration of the reasonableness of the deduction claimed for the amount paid out as bonus . We are of the view that the profit referred in law is the profit before charge of depreciation and payment of bonus. Even otherwise, it is a trite that payment of bonus as contractual liability is admissible expenditure without reference to the profits, as the assessee has no option in respect of payment of such bonus. It is an expenditure wholly and solely incurred for the purposes of business. We have further found that the bonus paid is in accordance With the past practice of the company and have been allowed in full in the previous assessment years 1989-90 to 1991-92. We, therefore, find no exception with the findings given by the learned CIT(A) in this respect, which are upheld and .the departmental appeal on this issue is dismissed.

7. The departmental appeal is partially allowed in the manner and to the extent discussed above. C.M.A./617/Tax (Trib.) Appeal partly allowed.