1968 (8) TMI 53 - SC - Income Tax

Whether computation of bonus in respect of the accounting year ending 31st March, 1965, payable to the employees is in accordance with the Payment of Bonus Ordinance ?

If not, what should be the quantum of bonus for the employees ?

Held that:- The error which the Tribunal fell into was in mixing up the development rebate reserve to which the company had to appropriate ₹ 7 lakhs in P. & L. account and the development rebate of ₹ 8.87 lakhs allowable to it under section 6 of the Act. Mr. Chari for the unions fairly conceded that he could not challenge this position. There was, therefore, no justification for the Tribunal to allow ₹ 7 lakhs only instead of ₹ 8.87 lakhs as development rebate.

An estimated liability under gratuity schemes such as the ones before us, even if it amounts to a contingent liability and is not a, debt under the Wealth-tax Act, if properly ascertainable and its present value is fairly discounted is deductible from the gross receipts while preparing the P. & L. account. It is recognised in trading circles and we find no rule or direcion in the Bonus Act which prohibits such a practice.

If Parliament intended to make a departure from the rule laid down by courts and tribunals that the bonus amount should be calculated after provision for tax was made and not before, we would have expected an express provision to that effect either in the Act or in the Schedules. In our view the contention urged by the company that the tax liability is to be worked out by first working out the gross profits and deducting therefrom the prior charges under section 6 but not the bonus payable to the employees is right.

In the result, the appellant company succeeds on the questions of development rebate and the provision for gratuity amount. Its appeal on those question is, therefore, allowed and to that extent the award is set aside. As regards the question of depreciation amount, the Tribunal will ascertain the amount afresh after giving the parties opportunity to lead such evidence as they desire and taking that amount and the amounts of development