JUDGMENT Arun Mishra, J. 1. This appeal has been admitted on May 10, 2001 on three questions. It is conceded at the Bar that question No. 1 does not arise. Necessary questions are questions Nos. 2 and 3. They are quoted below: (ii) Whether in view of the fact that the bonus to the extent of 121/2 per cent. of the salary and wages was paid under an agreement with the employees, there is justification in law to still hold that the payment of bonus could be allowed only to the extent of 8.33 per cent. ? (iii) Whether the order dated January 28, 2000 (P/5) of the Income-tax Appellate Tribunal disallowing the claim of the bonus to the extent of Rs. 1,58,090 is perverse ? 2. The facts in short are that the Assessing Officer for the accounting period ending on March 31, 1985 made an addition of Rs. 1,58,090 out of the bonus amounting to Rs. 4,73,893. According to the Assessing Officer, there was a loss in the business and when there was no allocable surplus, as per the provisions of the Payment of Bonus Act, 1965 (hereinafter referred to as the "Bonus Act"), it could not have paid more than 8.33 per cent. Section 36(1)(ii) of the Income-tax Act, 1961 (hereinafter referred to as "the Act of 1961"), restricts the payment in excess of the limits laid down by the Bonus Act. The order of assessment (P/1) was issued on March 30, 1990. The loss determined in their assessment order is at Rs. 3,93,213. Aggrieved by the order of assessment, an appeal was filed but the same has been dismissed vide order (P/3) dated March 17, 1993. Aggrieved by the appellate order passed by the Commissioner of Income-tax (Appeals), an appeal was filed before the Income-tax Appellate Tribunal, Jabalpur (in short "ITAT"). The appeal has been partly allowed however disallowance of bonus has been upheld by the Income-tax Appellate Tribunal also. Aggrieved by the aforesaid order, the present appeal has been preferred by the Appellant. 3. Aggrieved by the appellate order passed by the Commissioner of Income-tax (Appeals), an appeal was filed before the Income-tax Appellate Tribunal, Jabalpur (in short "ITAT"). The appeal has been partly allowed however disallowance of bonus has been upheld by the Income-tax Appellate Tribunal also. Aggrieved by the aforesaid order, the present appeal has been preferred by the Appellant. 3. Shri Sumit Nema, learned Counsel for the Petitioner has submitted that under Section 36(1)(ii) of the Act of 1961, bonus to certain extent is permissible and in case it is not covered under the aforesaid section, it is to be allowed as other expenditure within the purview of Section 37 of the Act of 1961 as there was no profit but loss was suffered, however, bonus was paid in view of the agreement entered into between the management and workers. Consequently, excess bonus ought to have been allowed. It is also submitted by him that the proviso to Section 36(1)(ii) of the Act of 1961 stands deleted now. 4. Counsel for the Petitioner has relied upon the decision of the apex court in Shahzada Nand and Sons v. CIT [1977]108 ITR 358, the decision of the High Court of Calcutta in CIT v. Shaw Wallace and Co. Ltd. [1991]190 ITR 455 and the decision of the High Court of Kerala in CIT v. P. Alikunju, M.A. Nazir, Cashew Industries [1987]166 ITR 611. 5. Shri Sanjay Lal, counsel for the Respondents has submitted that once the nature of expenditure is covered under Section 36 of the Act of 1961, it cannot be claimed under Section 37 of the Act of 1961. Only those expenditure which are not covered under Sections 30 - 36 can be claimed under Section 37 of the Act of 1961. Once payment of bonus is covered under the provision of Section 36 of the Act of 1961, it cannot be claimed under section" 37 of the Act of 1961. 6. Counsel for the Respondents has relied upon the decisions in Subodh-chandra Popatlal v. CIT/EPT [1953]24 ITR 566 (Bom), CIT v. Travancore Titanium Products Ltd. (No. 2) [1993]203 ITR 714 (Ker), Malwa Vanaspati and Chemical Co. Ltd. v. CIT [1985]154 ITR 655 (MP) : [1985] 44 CTR 90 and Addl. CIT v. Moolchand Jaikishandas and Co. [1977]108 ITR 500. 7. It is not in dispute that the payment of bonus up to the extent of 8.33 per cent. Ltd. v. CIT [1985]154 ITR 655 (MP) : [1985] 44 CTR 90 and Addl. CIT v. Moolchand Jaikishandas and Co. [1977]108 ITR 500. 7. It is not in dispute that the payment of bonus up to the extent of 8.33 per cent. is covered under the provisions of the Bonus Act. In the instant case, bonus over and above the aforesaid rate has been paid. The bonus paid is at the rate of 12.5 per cent. as per the agreement between the management and workers. Section 36(1)(ii) of the Act of 1961 as it stood at the relevant time before its amendment is quoted below: 36. (1)(ii) 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 deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (21 of 1965), apply, shall not exceed the amount of bonus payable under that Act: Provided further that the amount of the bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to-- (a) the pay of the employee and the conditions of his service; (b) the profits of the business or profession for the previous year in question ; and (c) the general practice in similar business or profession. 8. It is apparent from the aforesaid provision that the deduction in respect of bonus paid to an employee to which the provisions of the Payment of Bonus Act apply, shall not exceed the amount of bonus payable under that Act. The second proviso makes it clear that further amount of bonus or commission not being the bonus referred to in the first proviso is reasonable with reference to the pay of an employee and the conditions of his service, the profits of the business or profession for the previous year, in question and the general practice in similar business or profession. 9. In the instant case, there was no profit but on the other hand loss was suffered. Payment of bonus to the extent of 8.33 per cent has been allowed under the first proviso to Section 36(1)(ii) of the Act of 1961. 10. 9. In the instant case, there was no profit but on the other hand loss was suffered. Payment of bonus to the extent of 8.33 per cent has been allowed under the first proviso to Section 36(1)(ii) of the Act of 1961. 10. Section 37 of the Act of 1961 is quoted below: 37. Any expenditure (not being expenditure of the nature described in Sections 30 - 36 and not being in the nature of capital expenditure or personal expenses of the Assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Explanation.--For the removal of doubts, it is hereby declared that any expenditure incurred by an Assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure . . . (2B) Notwithstanding anything contained in Sub-section (1), no allowance shall be made in respect of expenditure incurred by an Assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. 11. It is apparent from Section 37(1) of the Act of 1961 that any expenditure not being expenditure of the nature described in Sections 30 - 36 of the Act of 1961 and not being in the nature of capital expenditure or personal expenses of the Assessee shall be allowed in computing the income chargeable under the head of profits and gains of business or profession. 12. In the instant case, nature of expenditure, i.e., bonus is clearly covered under Section 36 of the Act of 1961. Thus, it could not have been allowed as expenditure under the provisions of Section 37 of the Act of 1961. 13. The apex court recently in Southern Technologies Ltd. v. Joint CIT [2010]320 ITR 577 has laid down that if an item falls under Sections 30 - 36, but is excluded by the Explanation to Section 36(1)(vii) then Section 37 cannot come in. Section 37 applies only to items which do not fall in Sections 30 - 36 of the Act of 1961. Section 37 applies only to items which do not fall in Sections 30 - 36 of the Act of 1961. The apex court has laid down thus (page 611): As stated above, Section 36(1)(vii) after April 1, 1989 draws a distinction between write off and provision for doubtful debt. The Income-tax Act deals only with doubtful debt. It is for the Assessee to establish that the provision is made as the loan is irrecoverable. However, in view of the Explanation which keeps such a provision outside the scope of 'written off bad debt, Section 37 cannot come in. If an item falls under Sections 30 - 36, but is excluded by the Explanation to Section 36(1)(vii) then Section 37 cannot come in. Section 37 applies only to items which do not fall in Sections 30 - 36. If a provision for doubtful debt is expressly excluded from Section 36(1)(vii) then such a provision cannot claim deduction under Section 37 of the Income-tax Act even on the basis of 'real income theory' as explained above. 14. The High Court of Gujarat in Addl. CIT v. Moolchand Jaikishandas and Co. [1977]108 ITR 500 considered the question whether the payment of commission falls under Section 36(1)(ii) of the Act of 1961 and not under Section 37 of the Act of 1961. 15. Referring to the decision in Laxmandas Sejram v. CIT [1964]54 ITR 763 (Guj), it has been laid down in the context of the Income-tax Act, 1922 that the reasonableness of the payment has to be examined under Section 10(2)(x) of the Act. The akin provision to Section 37 of the Act of 1961 was Section 10(2)(xv). It was also held that such an expenditure would not fall within the purview of Section 10(2)(xv). In Subodhchandra Popatlal v. CIT/EPT [1953]24 ITR 566(Bom), the apex court has laid down the law to the similar effect on due consideration of the provisions of Sections 10(2)(x) and 10(2)(xv) of the Act of 1922. The CIT v. Travancore Titanium Products Ltd. (No. 2) [1993]203 ITR 714(Ker), it has been held that for such an expenditure Section 37 would not be attracted. Reference has also been made to the decision of the High Court of Madhya Pradesh in Malwa Vanaspati and Chemical Co. The CIT v. Travancore Titanium Products Ltd. (No. 2) [1993]203 ITR 714(Ker), it has been held that for such an expenditure Section 37 would not be attracted. Reference has also been made to the decision of the High Court of Madhya Pradesh in Malwa Vanaspati and Chemical Co. Ltd. v. CIT [1985]154 ITR 655 (MP) : [1985] 44 CTR 90 in which it has been held that Section 37(1) of the Act of 1961, being a residual provision, the aid of which cannot be taken, unless and until it is established that none of the provisions of Sections 30 - 36 are applicable to a given case. 16. Shri Sumit Nema, counsel for the Petitioners has relied upon the decision of the High Court of Calcutta in CIT v. Shaw Wallace and Co. Ltd. [1991] 190 ITR 455. 17. No doubt about it that in the aforesaid decision of the High Court of Calcutta relying upon the decision of the High Court of Kerala in CIT v. P. Alikunju, M.A. Nazir, Cashew Industries [1987]166 ITR 611, has observed that the payment which is not covered by the Bonus Act is regarded as reasonable so as to warrant allowance under Section 36(1)(ii) of the Act of 1961. The two provisos must be read together to correctly understand the permissible deduction in terms of Clause (ii) of Sub-section (1) of Section 36 of the Act of 1961. Referring to the decision of the High Court of Kerala in CIT v. P. Alikunju, M.A. Nazir, Cashew Industries [1987]166 ITR 611 their Lordships of the High Court of Calcutta have proceeded to consider that additional amount of Rs. 74,206 which was paid satisfies the three conditions laid down in the second proviso to Section 36(1)(ii) of the Act of 1961, therefore, allowable as a business deduction under Section 37 of the Act of 1961. Though, the High Court of Calcutta appears to have followed the decision of the High Court of Kerala in P. Alikunju's case [1987]166 ITR 611, but in P. Alikunju's case [1987]166 ITR 611, the reasonable bonus was allowed in the second proviso to Section 36(1)(ii) of the Act of 1961 on existence of the three conditions provided therein not under Section 37 of the Act of 1961. One of the important ingredients of the second proviso of Section 36(1)(ii) is that there has to be profit. One of the important ingredients of the second proviso of Section 36(1)(ii) is that there has to be profit. In the instant case, there was no profit but loss was suffered. 18. We are unable to persuade ourselves to follow the decision of the High Court of Calcutta in CIT v. Shaw Wallace and Co. Ltd. [1991]190 ITR 455, wherein it has been observed that three conditions are required and if conditions Nos. 1 and 2 of Section 36(1) of the Act of 1961 stand satisfied hence, such an expenditure has to be allowed under Section 37 of the Act of 1961. This runs contrary to the scheme of the section, the plain language of Section 37 and what is not permissible under Sections 30 - 36 is only allowable under Section 37 as laid down by the apex court in Southern Technologies Ltd. v. Joint CIT [2010]320 ITR 577. Reliance has also been placed on the decision of the High Court of Rajasthan in CIT v. Premier Vegetable Products [1997]227 ITR 931. We are unable to agree with the view taken for the aforesaid reasons. 19. The decisions of the High Court of Madhya Pradesh in Malwa Vanaspati and Chemical Co. Ltd. v. CIT [1985] 154 ITR 655 (MP) : [1985] 44 CTR 90, accords with the view taken by us in the instant case. The decision in CIT v. Sesa Goa Ltd. [2009] 316 ITR 399 (Bom), Bench at Panaji is also distinguishable as deduction was allowed under Section 36(1)(ii) of the Act of 1961. 20. For the foregoing reasons, we find that the bonus in excess of 8.33 per cent. which has been paid there being loss is not admissible under the second proviso to Section 36(1)(ii) of the Act of 1961. The allowance of permissible bonus as per the first proviso to Section 36(1) of the Act of 1961 has already been allowed to the Petitioner. The allowance of the remaining bonus paid in excess, there being loss, was not permissible. Such an expenditure cannot be allowed under Section 37 being of the nature admissible under Section of the Act of 1961. 21. Resultantly, the appeal being devoid of merit is hereby dismissed. No costs.