Commissioner of Taxes, Dhaka (South) Zone, Dhaka Vs. Ujala Match Factory, 54 DLR (AD) (2002) 23

Case No: Civil Appeal Nos.15, 16 and 17 of 1992

Judge: Mainur Reza Chowdhury ,

Court: Appellate Division ,,

Advocate: Md. Nawab Ali,Mr. Dabiruddin Ahmed,,

Citation: 54 DLR (AD) (2002) 23

Case Year: 2002

Appellant: Commissioner of Taxes

Respondent: Ujala Match Factory

Subject: Income Tax, Fiscal Law,

Delivery Date: 2001-7-9

 
Supreme Court  
Appellate Division  
(Civil)  
 
Present:
Mainur Reza Chowdhury, J.
Md. Gholam Rabbani, J.
Md. Ruhul Amin, J.
Md. Fazlul Karim, J.
 
Commissioner of Taxes, Dhaka (South) Zone, Dhaka
…...…….. Appellant
Vs.  
Ujala Match Factory
…………. Respondent
 
Judgment  
July 9, 2001.
 
The Income Tax Act, 1922
Sections 10(2)(X) & 16(2)(XVI) 
Since the respondent assessee paid the bonus to the employees as per direction of the Government under the provisions of the above Ordinance and Notification, the question of earning profit for payment of bonus, does not arise……(5) 
 
Lawyers Involved:  
Dabiruddin Ahmed, Deputy Attorney-General instructed by Md. Sajjadul Huq, Advocate-on- Record  For the Appellant (In all the cases).  
Md. Nawab Ali, Advocate-on-Record — For the Respondent (In all the cases).  
 
Civil Appeal Nos.15, 16 and 17 of 1992
(From the judgment and order dated 2 June 1991 passed by the High Court Division in Reference Application Nos. 1, 2 and 3 of 1984).
 
JUDGMENT
Mainur Reza Chowdhury J.
 
These appeals under Article 103(2) of the Constitution arise from certificate granted by the High Court Division under section 66A (2) of the Income Tax Act 1922 to appeal against its common judgment dated 2-6-1991 delivered on reference made by the Deputy Commissioner of Taxes under section 66 of the Income Tax Act 1922 in application Nos. 1, 2 and 3 of 1984. The High Court Division was required to answer the following question in the affirmative:
 
“Whether in the facts and in the circumstances of the case the Tribunal was justified in directing the Deputy Commissioner of Taxes to allow bonus as expenditure under section 10(2)(XVI) of the Income Tax Act, when the appellant-company had disclosed loss for the assessment years 1976-77, 1977-78 and 1978-79 and the same was disallowed by the Deputy Commissioner of Taxes under section 10(2)(X).”
 
2. The relevant facts of the cases are that the respondent Ujala Match Factory Dhaka filed income tax return for the assessment years 1976-77, 1977-78 and 1978-79 claiming deduction of bonus of Taka 6,39,904, Taka 5,25,588 and Taka 5,42,742 for the above assessment years respectively. The Deputy Commissioner of Taxes disallowed these claims under section 10(2)(X) of the Income Tax Act and the same was upheld by the Appellate Joint Commissioner of Taxes on appeal preferred by the respondent assessee. The respondent assessee then filed Income Tax Appeal Nos. 1762 and 1763 of 1981-82 and Income Tax Appeal No. 3729 of 1982-83 before the Income Tax Appellate Tribunal who by one judgment dated 13-10-83 allowed the appeals in part, inter alia, by making the following observations.
 
“Records show that although the appellant- company disclosed no book losses in all the years under reference the DCT nonetheless, computed net income in each of these years. This, in our view, turns the table completely against the department. Since the department itself has computed profit in all these years there is no reason why the condition of profit as laid down in section 10(2)(X) should not be deemed to have been amply satisfied. We will thus conclude that bonuses as in the cases of the appellant-company are allowable business expenditure within the meaning of section 10(2) of the Act and they shall be allowed as such. The orders of the DCT disallowing such expenditure and those of the learned AJCT confirming them shall therefore stand vacated for the assessment years 1976-77, 1977-78 and 1978-79.”
 
3. The Deputy Commissioner of Taxes then filed an application under section 66(1) of the Income Tax Act, posing the query as has been quoted above. It was submitted on behalf of the learned Counsel for the applicant before the High Court Division that there was no provision for allowing bonus under section 10(2) (XVI) as given by the Income Tax Appellate Tribunal when the bonus claimed by the assessee under section l0 (2) (X) of the aforesaid Act is not allowable to him as the assessee allegedly did not earn any profit, during the years in question. The High Court Division noticed from Annexure-A series, that the Deputy Commissioner of Taxes disallowed the bonus as no profit was made by the assessee company by observing that since there was no profit, the claim of bonus under ‘section 10(2)(X) of the Income Tax Act cannot be allowed. The High Court Division examined the provision under Section l0 (2) (X) of the Income Tax Act which runs as follows:
 
“10. (1) Subject to the provisions of this Act, the tax shall be payable by an assessee under the head business profits and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation carried on by him.  
(2) Subject to the provisions of this Act such profits or gains shall be computed after making the following allowances, namely—  
(X) any sum paid to an employee as bonus or commission for services rendered, whether 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 of a reasonable amount with reference to—  
(a) the pay of the employee and the conditions of his service;  
(b) the profits of the business, profession or vocation for the year in question;  
(c) the general practice in similar businesses, professions or vocation.”
 
4. It was found from the impugned judgment of the Income Tax Appellate Tribunal that the Tribunal had allowed bonus under section 10(2) (X) of the Income Tax Act and not under section 10(2)(XVI) of that Act as alleged in the reference. The High Court Division also clarified the impugned judgment of the Income Tax Appellate Tribunal that in mentioning under section 10(2) second time, it was not mentioned whether the claim was allowed under clause (X) or (XVI) probably through mistake and oversight. But from the judgment it was clear that clause (X) was inadvertently omitted. The Income Tax Appellate Tribunal in fact, did not allow the claim for bonus under section 10(2)(XVI) of the Income Tax as argued by the learned Advocate for the applicant and posed in the question by the Deputy Commissioner of Taxes in the reference quoted above. On the question whether the Income Tax Appellate Tribunal was justified in allowing the bonus claimed by the respondent assessee for the Income Tax years in question it was evident to High Court Division from the judgment of the Income Tax Appellate Tribunal that since the Deputy Commissioner of Taxes, did not accept the plea of the assessee that no profit was made by the Industry in the assessment years in question and held that the assessee in fact made profit and taxed the assessee accordingly, the Deputy Commissioner of Taxes was not justified in disallowing the claim for bonus. The argument of the Appellate Tribunal was not refuted by the learned Advocate for the applicant before the High Court Division. Therefore it held that the Income Tax Appellate Tribunal was justified in allowing the claim of bonus on that ground alone.  
 
5. It was also argued for the respondent assessee that the bonus for which exemption was claimed was an incentive bonus and it was paid as per Government Notification No. HID-37/73/950 19th December 1973 issued under Ordinance No. XXIII of 1973. It was found from the above Ordinance and Notification that all workers of the Sector Corporation were allowed festival and incentive bonus. Since the respondent assessee paid the bonus to the employees as per direction of the Government under the provisions of the above Ordinance and Notification, the question of earning profit for payment of bonus, does not arise and Deputy Commissioner of Taxes was not justified in disallowing the claim of bonus made by the assessee which was admittedly a nationalised industry under Sector Corporation. The  Ordinance No. XXIII of 1973 being later legislation than the Income Tax Act,1922, the provisions of the Ordinance shall prevail in case of any inconsistency or conflict  between the provisions of section 10(2)(X) of the Income Tax Act and the provisions of the Ordinance.  
 
6. Considering the above facts and circumstances and the legal position discussed the High Court Division’s answer to the question under reference was, that the Income Tax Appellate Tribunal was justified in allowing the deduction of bonus for the assessment years in question as claimed by the assessee under section 19(2)(X) of the Income Tax Act, 1922. It was further observed that the Income Tax Appellate Tribunal did not allow the bonus under section 10(2)(XVI) as alleged by the Deputy Commissioner of Taxes but under section 10 (2)(X). The question was answered accordingly, in the affirmative and the applications were rejected.  
 
7. We have carefully gone through the judgment of the High Court Division. Clause (X) of section 10(2) of the Income Tax Act, 1922 provides for payment of bonus to employees for service rendered .There being clear provision for payment of bonus, the question is whether the assessee can claim declaration for payment of such bonus when the assessee respondent had declared that there was no profit. The High Court Division agreed with the Income Tax Appellate Tribunal that the Deputy Commissioner of Taxes having himself found that the respondent assessee had in fact made profit and assessed taxes on the basis of the profit he was not justified in disallowing the claim for bonus. We do not find any illegality in this argument of the Appellate Tribunal which was upheld by the High Court Division. It appears that the High Court Division also held to give bonus as incentive to its employees, it was not necessary to have made profit. Under section 3 of  Ordinance No. XXIII of 1973, the Government has the overall authority to determine the terms conditions of service of the workers of the state owned Industries. The relevant portion of section 3 of the Ordinance runs as follows:
 
“3. Power of Government determines terms and conditions of service of workers on the basis of certain recommendations of the Commission.- (1) Notwithstanding any thing contained in the Industrial Relations Ordinance, 1969 (XXIII of 1969), or in any other law or any rule, regulation, by-law, agreement, award, settlement, custom, usage or terms and conditions of service for the time being in force, the Government may with a view to implementing such recommendations of the Commission as may be accepted by it, by notification in the official Gazette, determine the wage, bonus, medical allowance, house rent allowance, conveyance allowance and leave which shall be payable or admissible to any worker employed in any State-owned manufacturing industry, and no such worker shall receive or enjoy, and no person shall allow to such worker any wage, bonus, leave, medical allowance, house rent allowance and conveyance allowance in excess of what is so determined.”
 
8. By notification No. HID-37/73/950/1973 all workers of the Sector Corporation were allowed festival and incentive bonus and since the respondent assessee paid the bonus to the employees as per direction of the Government under the provisions of the above Ordinance and notification, the question of earning profit of bonus did not arise. We are in agreement with the view expressed by the High Court Division. As payment of bonus to employees is an incentive for service rendered by them, such payment of bonus as directed by the Government is not dependent on profit.  
 
9. We therefore have no reason to interfere with the judgment passed by the High Court Division in application Nos.1, 2 and 3 of 1984 made under section 66(1) of the Income Tax Act, 1922.  
 
The appeals are dismissed without any order as to costs.  
 
Ed.