1. Revenue seeks admission of the Tax Case (Appeal) relating to the assessment year 2008-09 raising the following question of law:

"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessee is entitled for deduction of ex-gratia payment made to the employees since bonus cannot be paid as the employees are excluded from the category of bonus under the Payment of Bonus Act"

2. While completing the assessment under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer found that the assessee had claimed deduction on the ex-gratia payment made to employees who were not covered by the provisions of the Payment of Bonus Act. The assessee contended that it was a type of incentive given to those employees, who did not fall under the provisions of the Payment of Bonus Act. The claim of the assessee was rejected holding that the same could not be treated as one falling under business expediency referred to under Section 37(1) of the Income Tax Act, 1961 specifically excluding the expenditure covered under Sections 32 to 36 of the Act and more so, in particular, when Section 36(1)(ii) specifically deals with payment of bonus as a head of deduction. The Assessing Officer held that the assessee was not entitled to have the deduction considered under Section 37(1) of the Act. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who confirmed the order of the Assessing Officer. Hence, the assessee went on further appeal before the Income Tax Appellate Tribunal. The Tribunal pointed out that the payment in the instant case was made to those employees who did not fall within the purview of the Payment of Bonus Act. The provisions under Section 36(1)(ii) of the Income Tax Act, 1961 covered specific instances stated therein and that ex-gratia payment made to employees in excess of statutory limit was considered as a head of deduction. In this the Tribunal referred to the decision of the Calcutta High Court reported in (1994) 208 ITR 1002(Cal) [CIT vs. National Engineering Industries Ltd.]. The Tribunal further considered that the payment was a matter of business expediency. Even assuming for a moment that the amount paid was in excess of what is prescribed in the Payment of Bonus Act, the same would merit consideration as a deduction and that being the case, the Tribunal held that the payment made by the assessee to its employees who were not covered under the provisions of the Payment of Bonus Act was in the nature of exgratia payment as an incentive to the employees to be considered for deduction under the provisions of Section 37(1) of the Income Tax Act,1961.

3. Aggrieved by this view of the Tribunal, the present appeal has been preferred by the Revenue.

4. We agree with the view expressed by the Tribunal that there being no restriction or prohibition under Section 37 of the Income Tax Act, 1961 on the claim for deduction on the ex-gratia payment given in the form of an incentive to the workman out of business expediency and the payment being a business expenditure, the Revenue's case deserves to be dismissed at the admission stage itself.

5. In the result, the Tax Case (Appeal) is dismissed. No costs. Consequently, the connected miscellaneous petition is closed.