5.10     Query

Computation of ‘Allocable Surplus’ under Payment

 of Bonus Act.

            The central Board of Direct Taxes has decided that any income derived from the letting off of godowns or warehouses for storage, processing or facilitating the marketing of commodities will be exempt in the case of any warehousing corporation-central of state-under Section 10(29) of the Income-tax Act, 1961.

            Kindly clarify whether in the case of such a corporation, the notional direct taxes should or should not be considered in the calculation of allocable surplus under the Payment of Bonus Act, 1965.

Opinion                                                                                                  September 25, 1978

            The facts and circumstances of the case referred to by the querist were examined by the Committee in light of the relevant provision of Payment of Bonus act and various case laws. In the opinion of the Committee , according to the judgement of the Supreme Court in Metal Box Case, direct taxes should be deducted from gross profits as allowed under Section 6(c) read with Section 7 of the Payment of Bonus act, 1965, even in the case where the employer, for any reason whatsoever, may not have to pay tax on his income. In this case, although its income is exempt under Section 10(29) of the Income-tax Act, 1961, the Committee basing on the aforesaid judgement feels that notional tax is to be deducted from the gross profits computed under Section 4 of the Payment of Bonus Act, 1965 as is being done in the case of religious or charitable institutions in similar circumstances as prescribed under Section 7(b) of the Act. The Committee also feels that the Corporation’s status under the Income-tax Act, 1961, had already been determined in the process of assessment made by the Income-tax authorities before the Central Board of Direct Taxes’ decision was communicated to it exempting its income under Section 10(29) of the Act. There will not be any difficulty in determining rates applicable to the income of the corporation for the purpose of calculating tax liability under Section 6(c) read with Section 7 of the Payment of Bonus Act,1965. This stand has been taken by the Committee for the following reasons: -

            (i)         It is consistent with the words  “is liable to pay” under Section 6(c).

(ii)        It is in harmony with the provisions of Clauses 4 and 6 of the Second Schedule.

(iii)       It is consistent with the intention of Parliament apparent from the scheme of computation of available surplus of income.

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