H. K. Sema, J. — The Revenue has referred the following questions under section 256 (1) of the Income Tax Act, 1961 before the Income Tax Appellate Tribunal: " 1. Whether on the facts and in the circumstances of the case the Tribunal was not in error in law and in facts in holding mat me Commissioner of Income Tax was justified in holding the bonafides of the change in the method of valuation of closing stock and in that view of the matter in deleting the addition of Rs. 1,29,43,042 ? 2. Whether on the facts and in the circumstances of the case and in view of the first proviso of clause (ii) of sub-section (1) of section 36 of the IT Act, 1961 as existed during the relevant assessment year, the Tribunal has not erred in law and in facts in upholding Commissioner of Income Tax (Appeal)'s order deleting disallowances of Rs. 26,29,657 on account of ex-gratia payment paid in excess of the Payment of Bonus Act, 1965 on the ground mat the payment has been made wholly and exclusively for the purpose of business? 3 .Whether on the facts and in the circumstances of the case, the Tribunal did not err in admitting the ground regarding deduction of surtax in computing the taxable income when such ground did not arise from the order of the Commissioner of Income Tax? 4. Without prejudice to question No. 3 above whether in view of the provisions of clause (ii) of sub-section (a) of section 40 me IT Act, 1961, the Tribunal did not err in law in directing the OA to allow deduction of surtax payable from the taxable income of the assessee ?" 2. The Appellate Tribunal was of the view that question Nos 1,3 and 4 are not relatable to question of law and declined to refer the same before this Court, however, the Tribunal was of the opinion that although the order of Commissioner of Income Tax was upheld, since no decision of the jurisdictional High Court in so far with regard to question No. 2 is concerned, thereby referred the question No. 2 before this Court for opinion. 3. Mr. GK Joshi, learned counsel for the Revenue and Dr. Ashok Saraf, counsel for the assessee therefore confined their argument on the reference No. 2. 3. Mr. GK Joshi, learned counsel for the Revenue and Dr. Ashok Saraf, counsel for the assessee therefore confined their argument on the reference No. 2. The substantial question of law raised in the reference No. 2 is reproduced again: “2. Whether on the facts and in the circumstances of the case and in view of die first proviso of clause (ii) of sub-section (1) of section 36 of die IT Act, 1961 as existed during die relevant assessment year, die Tribunal has not erred in law and in facts in upholding Commissioner of Income Tax (Appeal's order deleting disallowances of Rs. 26,29,657 on account of ex-gratia payment paid in excess of die Payment of Bonus Act, 1965 on die ground that the payment has been made wholly and exclusively for the purpose of business?..." 4. Before we answer the reference, basic facts strictly for the purpose of answering to reference made be noted. The assessee M/s Assam Frontier Tea Ltd is a company registered under the Companies Act. For the assessment year ending 31st March, 1984 the company has declared 14.95% bonus under the Payment of Bonus Act and 5.05% as ex-gratia payment to workers and staffs eligible for payment amounting to Rs. 26,29,657 and on appeal by the Revenue the Deputy Commissioner disallowed the deduction of Rs. 26,29,657. On appeal the Commissioner of Income Tax (Appeal) allowed the deduction of Rs. 26,29,65 7 on account of ex-gratia payment and hence the reference. 5. Mr. GK Joshi, learned counsel submits that ex-gratia payment is not bonus and not deductible under section 36 (1) (ii) of the Act and such payment can not also be deductible under section 37 of the Act as this expenditure may be d allowed under section 37 of the Act only when these are not subject matter of deduction under section 30 to 36 of the Act. On the other hand, it is contended by Mr. Ashok Saraf, learned counsel for the assessee that ex-gratia is not a bonus but it was in the nature of customary bonus. In the case in hand, the assessee company paid the bonus to the labourers for the period ending 30.6.85 on the basis of Payment of Bonus Act, 1965. On the other hand, it is contended by Mr. Ashok Saraf, learned counsel for the assessee that ex-gratia is not a bonus but it was in the nature of customary bonus. In the case in hand, the assessee company paid the bonus to the labourers for the period ending 30.6.85 on the basis of Payment of Bonus Act, 1965. Subsequent to the payment of bonus to ^ e the labourers under the Bonus Act, 1965, the Assam Chah Mazdoor Sangha representing the welfare of the tea garden labourers by its letter dated 21.8.1984 addressed to the owners of the tea industries to enhance bonus payable to employees to 20%. After receipt of the aforesaid letter the assessee company passed resolution by resolving to declare 14.95% bonuses under the Payment of Bonus Act, 1965 and 5.05% as ex-gratia payment extended to all workers and / other eligible labourers and staffs. The aforesaid resolution was communicated to all the Managers of the companies vide Circular No. 183 dated 11.9.1984. It is obvious that this was done with an eye to buy industrial peace and to save the industries from strike or lock out. This has also been done keeping in view the customary bonus in consonance with the practice followed by commercial and business establishments. 6. Admittedly, the ex-gratia payment made by the assessee company to the labourers and staffs for the period under reference does not come within the mischief of Payment of Bonus Act, 1965. Section 37 of the Income Tax Act, allowed deductions expenses wholly and exclusively for the purpose of the business or provision other than the expenditure prescribed in section 30 to 36 of the Act. We have already hold that the payment of the ex-gratia payment made by the assessee company to its labourers and staffs with a view to buy industrial peace and save industries from strike and lock out and to keep a customary practice adopted in business and commercial establishment, thereby improve productions for the company and increase revenue for the State. In the instant case, as already pointed out, the company has considered the letter of Secretary, Assam Chah Mazdoor Sangha dated 21.8.84 and passed resolution declaring 14.95% bonus under the Payment of Bonus Act and 5.05% as ex-gratia labourers and staff eligible for payment, and the said resolution was communicated to all the Managers vide Circular No. 183 dated 11.9.84. In the instant case, as already pointed out, the company has considered the letter of Secretary, Assam Chah Mazdoor Sangha dated 21.8.84 and passed resolution declaring 14.95% bonus under the Payment of Bonus Act and 5.05% as ex-gratia labourers and staff eligible for payment, and the said resolution was communicated to all the Managers vide Circular No. 183 dated 11.9.84. The assessee company is running the industry and the industry cannot survive unless mere is cordial relationship between the employer and the employees. The ex-gratia amount was paid to the labourers and staffs for labourers' peace. The ex-gratia amount has been paid by the assessee exclusively and for the purpose of business of the assessee and hence such expenditure is permissible to be considered under section 3 7 of the Income Tax Act, 1961. 7. Dr. Ashok Saraf, learned counsel appearing for the assessee submits that the issue are no more res-integra. Counsel has referred to the following decisions - (a) In (1991) 190 ITR 455 (Commissioner of Income Tax vs. Shaw Wallace & Co Ltd), the Calcutta High Court held that the payment of Rs. 74,206 by way of ex-gratia calculated at 8.17 percent made by the assessee in terms of the memorandum of settlement wholly and exclusively for the purpose of business and was, therefore, allowable as a business deduction under section 36 (1) (ii) of the Income Tax Act, 1961. (b) In (1997) 227 ITR 211 (Commissioner of Income Tax vs. D. Mohammed Ismail), the Madras High Court had held that the customary bonus paid to the employees as a matter of practices satisfied the conditions prescribed under the second proviso to section 36 (1) (ii) of the Income Tax Act, 1961. (c) In (1999) 237 ITR 857 (Commissioner of Income Tax vs. Thinagarafar Mills Ltd) the Madras High Court was considering whether the payment of incentive Bonus Act is an allowable deduction notwithstanding section 36 (1) (ii) and held that it is allowable under the provision of section 37 of the Act. (c) In (1999) 237 ITR 857 (Commissioner of Income Tax vs. Thinagarafar Mills Ltd) the Madras High Court was considering whether the payment of incentive Bonus Act is an allowable deduction notwithstanding section 36 (1) (ii) and held that it is allowable under the provision of section 37 of the Act. (d) In (2000) 241 ITR 564 (Kumaran Mills Ltd vs. Commissioner of Income Tax), the Madras High Court was examining as to whether the payment made over and above the statutory maximum made by the employers to the labourers pursuant to an agreement under the Industrial Dispute Act was deductible under section 37 of the Income Tax Act, 1961 and held that such payment for the purpose of commercial expediency and business or profession is allowable under section 37 of the Act. 8. Following the aforesaid decisions, we are of the opinion that the additional amount in the form of ex-gratia payment by the assessee company to the labourers and staffs were expanded wholly and exclusively for the purpose of the business and profession to keep the labourers satisfy and to buy the industrial peace and to avoid strike and lock out and therefore such expenditure paid in excess of bonus) in the nature of ex-gratia payment is allowable as business expenditure under section 37 of the Income Tax Act, 1961. We accordingly answer the reference in favour of the assessee and against the Revenue. No costs.