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TMI Blog1971 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 not ascertained or known till the final adjustment of the accounts ?" The assessee is a private limited company engaged in the business of sports goods. The assessment year involved is 1962-63, the accounting year being the calendar year 1961. There is a group of three companies including the assessee-company which is managed by the same management. M/s. A. H. Wheeler & Co. (P.) Ltd. is the parent company, while the other tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. He was of the opinion that the fact that the staff did not belong to the assessee-company was of no consequence. There was an appeal by the department to the Income-tax Appellate Tribunal. The Tribunal agreed with the view of the Appellate Assistant Commissioner of Income-tax, but disallowed the assessee's claim on another ground, the ground being that as the provision for the bonus had been made before the close of the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 bonus was passed on December 4, 1961, and the accounts of the previous year were to be closed on December 31, 1961, so that the resolution was passed almost at the end of the year. It cannot be said that the board of directors of the assessee-company were not in a position at that time to have an idea of the profits of the company. "Bonus" is not a share or a fraction of profit. It is an amount which is to be fixed with reference to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 declared by the board of directors after taking into consideration the profit which the company was expected to earn in the calendar year 1961. That is all that the law requires. There is no authority for the view that unless the actual profits are worked out, a declaration for the payment of bonus cannot be made. Now, the importance of the accounts being kept on the mercantile system is that in such a case a deduction in respect of bonus can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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