TMI Blog1971 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... N. DWIVEDI., R. L. GULATI. JUDGMENT Income-tax Reference No. 242 of 1967 The judgment of the court was delivered by R. L. GULATI J.-This is a reference under section 256(1) of the Income-tax Act, 1961. The following question of law has been referred for the opinion of this court. "Whether, on the facts and circumstances of the case and where the assessee had kept its books on mercantile system of accountancy and had made a provision for payment of bonus just before the close of the accounting year in pursuance of a resolution of the board of directors, it could rightly be held that the claim for the deduction on the amount for the provision of bonus cannot be allowed as a deduction on the ground that the assessee's profits were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate of one-sixth of the total basic pay drawn by the staff during the year, the payment to be made after the final accounts for the year have been drawn up." In pursuance of the aforesaid resolution a sum of Rs. 6,500 was earmarked for the payment of the bonus and appropriate adjustment entry was made in the accounts for the calendar year 1961. The assessee claimed this sum of Rs. 6,500 as a deduction in the computation of its net income assessable for the year 1962-63. The Income-tax Officer disallowed the claim principally on the ground that the staff to whom the bonus was payable did not belong to the assessee-company. The Appellate Assistant Commissioner of Income-tax on appeal reversed the finding of the Income-tax Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existence of conditions (a) and (c) referred to above, but has held that condition (b) did not exist. Condition (b) merely stipulates that the admissibility of any sum paid as bonus shall be judged with reference to the profits of the previous year in question. The profit for the relevant previous year in the instant case was a sum of Rs. 61,794. The Tribunal has not taken the view that the amount of profit was inadequate so as to warrant the payment of the bonus. Its view seems to be that since the profit had not been worked out when the provision for the payment of bonus was made, the claim could not be allowed. We are of opinion that the Tribunal was in error in taking that view. The resolution for making the provision for payment of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deduction only in the assessment year which was relevant to the year in which the award was made. The claim could not be made in any previous assessment year, even though the profits out of which the bonus was payable were in respect of an earlier year. No such question is involved in the instant case. There was no dispute between the company and its employees for the payment of bonus. The payment of bonus was voluntary. It can be assumed that the staff 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. In the instant case it is apparent that payment of bonus was dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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