TMI Blog1973 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is a private limited company. For the assessment year 1957-58, the account year being the calendar year ending December 31, 1956, the assessee submitted a return and claimed a deduction of a sum of Rs. 1,98,993. The assessee was keeping its accounts on mercantile system. In the accounts for the calendar year 1956, the assessee made a provision for bonus payment of Rs. 1,50,000 for the year 1956 on the basis of 3 3/4 months' wages. The bonus was actually paid after the close of the accounting year 1956, the actual payment being of the order of Rs. 1,98,993 equivalent to five months' wages. The assessee claimed deduction also in regard to the difference of Rs. 48,993 not provided in the accounts of 1956 but paid for 1956 in later periods representing additional bonus liability equivalent to 11 months' wages, following the advice of the Southern India Mill Owners' Association of which it was a member. The Income-tax Officer disallowed the entire claim for deduction of bonus on the ground that no part of it was an ascertained liability at the close of the accounting year 1956 and normally bonus is allowed on the basis of actual payment. The Appellate Assistant Commissioner, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56-57 assessment. In fact, for the assessment year 1949-50, when the department refused to allow any deduction over and above the sum of Rs. 75,000 for which amount alone provision has been made in the accounts, the assessee took the matter in appeal and the Appellate Assistant Commissioner held that the assessees were entitled to an allowance of Rs. 1,36,719 being the total amount disbursed subsequent to December 31, 1958, on account of bonus. The learned counsel further submitted that this practice proceeds on the basis of an implied agreement between the assessee and its employees and such an agreement could be spelled out from the aforesaid conduct. The learned counsel wanted that this method of making provision for bonus in the year of account be treated as a system of accounting itself followed by the assessee for a long number of years enabling it to treat the provision as one for a current liability. We are unable to accept this contention of the learned counsel for the assessee. There is no evidence as to the basis on which the provision was made in the earlier years. For the assessment year 1957-68, Rs. 1,50,000 is said to have been arrived at on the basis of 31 months' s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure was properly debitable in the accounting year ending January 31, 1952, this court observed : "The claim for bonus, to whatever period it relates, is at best a contingent liability even at the stage the claim is preferred. It becomes an accrued liability if the claim is admitted by the employer. If the claim is denied and the workmen do not, pursue the claim it will never accrue as a liability. If the claim is denied by the employer and it is referred as an industrial dispute, no liability accrues, if the industrial tribunal negatives it if, however, the claim is upheld by the industrial tribunal after adjudication, it becomes an accrued liability when the award becomes enforceable. If, as happened in the case of the claim for 1950, the claim for bonus is settled by agreement between the employer and the employees, it becomes an accrued liability on the date of the agreement." On the question whether the bonus payment was properly debitable only for the years of account 1949 and 1950, this court observed that it was only in the year of account ending January 31, 1952, that the liability accrued because the award was made on February 9, 1951, in respect of 1949 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly paid. A similar question arose for consideration before the Supreme Court in Commissioner of Income-tax v. Swadeshi Cotton and Flour Mills Private Ltd. In that case, the assessee paid as bonus to its employees a sum of Rs. 1,08,325-9-3 for the calendar year 1947 in terms of an award made on January 13, 1949, under the Industrial Disputes Act. This amount was debited by the assessee in its profit and loss account for the year 1947-48 and the corresponding credit was given to the bonus payable account. The books for 1948 had not been closed till the date of the order of the industrial tribunal on January 13, 1949. This bonus was in fact paid to the employees in the calendar year 1949, the relevant assessment year being 1950-51. It was also found in that case that up to 1946, when the order for payment of bonus used to be received before the company's accounts for the year were finalised, the amount of bonus used to be in fact debited to the profit and loss account of the respective year. The question for consideration was whether and in what year the liability of the sum of Rs. 1,08,325 arose according to the mercantile system. It was held that it was only in 1949 when an award ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments of considerable sums towards bonus. The learned judges considered this as an agreed and admitted liability and the dispute was only with reference to the additional amount and, therefore, held that it is an accrued liability. In our case, as already stated, the provision was not made on the basis of any agreement between, the parties and it was only a provision for meeting a contingent liability. In Symonds Distributors' case also, the decision proceeded on the assumption that "they must have made a claim and the management must have accepted it or that there must have been a subsisting understanding between the company and its employees for the payment of bonus in case the company earned good profits." We cannot make any such assumptions in the present case for the reasons already set out. Further, in Symonds Distributors' case, there was a resolution of the board of directors to pay bonus at a particularate even during the accounting year in question and the provision was made only on the basis of the resolution. It was not disputed in that case that the assessee had incurred a liability when it passed the resolution. Clearly, therefore, the ratio of this decision is ..... 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