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TMI Blog1972 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on the relevant valuation date, namely, 31st March, 1959. This claim for deduction was negatived by the Wealth-tax Officer and hence the assessee preferred an appeal to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, the claim for deduction was revised, since, in the meantime, the amount of bonus payable to the workmen was settled and Rs. 2,62,279 and Rs. 1,82,007 were paid to the workmen of Baroda unit and Sayaji Mills No. 2, respectively, as bonus for the calendar year 1958 and Rs. 19,433 were paid to the workmen of Kathwada factory as bonus for the accounting year 1st April, 1958, to 31st March, 1959. These payments aggregating to Rs. 4,63,719 formed the subect-matter of the revised claim for deduction made by the assessee before the Appellate Assistant Commissioner. The argument of the assessee was that, though these payments were made subsequent to the relevaut valuation date, they were in respect of liability for bonus which had arisen prior to the relevant valuation date in the case of Baroda unit and Sayaji Mills No. 2, and on the relevant valuation date in the case of Kathwada factory and they were, therefore, deductible as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the provisions of concerned Act: it may have different shades of meaning. But the following definition is unanimously accepted : 'A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation: debitum in praesnti, solvendum in futuro.' The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesnti or in futuro till the contingency happened. But if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of section 2(m) of the Wealth-tax Act can be defined as a liability to pay in praesenti or in futuro an ascertainable sum of money." The Supreme Court then proceeded to consider when does the liability to pay income-tax become a "debt" within the meaning of that expression on a proper interpretation of the relevant provisions of the Income-tax Act and particularly section 3, in the light of judicial pronouncements by the highest courts in India, the Supreme Court came to the conclusion: " To summariz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect meaning of the word "debt". To quote again the words of B. K. Mukherjee J. in Jabed Sheikh v. Taker Mallick, " there cannot be a debt in law unless there is a liquidated money claim". This, of course, does not mean that the amount of the claim must be an ascertained amount. It may be ascertainable in future as was the case in O'Driscoll v. Manchester Insurance Committee, or Kesoram Industries case. But it must be a liquidated amount which is certain and definite though not yet ascertained. The process of ascertainment in such a case would be nothing but a process of discovering or finding out what is that certain and definite sum. What was uncertain and indefinite does not become certain and definite by this process, but what happens is that that which was always certain and definite but not ascertained is now ascertained. This is an essential characteristic of a debt, namely, that it should be for a liquidated amount, whether ascertained or ascertainable and that is why B. K. Mukherjee J. held in Jabed Sheikh v. Taher Mallick that in a suit for mesne profits for wrongful possession of land, though law declares that a person in unlawful possession of land is liable to pay mesn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there can be no doubt that if this interpretation of the decision of the Supreme Court in Swadeshi Cotton & Flour Mills case is correct, it would be unnecessary for us to examine the question on principle and we would have to proceed on the basis that liability for bonus becomes a "debt owed" by the assessee only when a claim for bonus is made by the workmen and it is settled amicably or by industrial adjudication. But a little scrutiny will reveal that this reading of the decision of the Supreme Court is not correct. The question which arose for determination before the Supreme Court was whether a certain amount paid by the assessee as bonus to its workmen for the calendar year 1947 in terms of an award made on 13th January, 1948, was an allowable deduction in the calendar year 1947 or in the calendar year 1949. The claim of the assessee for deduction was based on section 10(2)(x) read with section 10(5) of the Indian Income-tax Act, 1922. Section 10(2)(x). provided that 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 shall be deductib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these observations that "...is only when the claim to profit bonus, if made, is settled amicably or by industrial adjudication that a liability is incurred by the employer, who follows the mercantile system of accounting, within section 10(2)(x), read with section 10(5) of the Act". It will be seen from these observations that the Supreme Court was not concerned with the wider question as to when liability for bonus arises or when it can be said to become a "debt owed" by the assessee. The Supreme Court was concerned only with the limited question, namely, when is liability for bonus incurred according to the mercantile system of accounting and since the mercantile system of accounting requires that the amount of the liability should be ascertained before it can be entered in the accounts the only point which the Supreme Court was required to consider was as to when liability for bonus becomes an ascertained liability. That obviously it becomes only when a claim for bonus is made by workmen and such claim is settled amicably, or by industrial adjudication. This decision of the Supreme Court cannot, therefore, be regarded as an authority binding on us for the purpose of a wholly di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) return on the working capital at a lower rate than the return on paid up capital and, from the balance called "available surplus", the workmen were to be awarded a reasonable share by way of bonus for the year. The Full Bench Formula came up for consideration before the Supreme Court in several cases. The Supreme Court did not commit itself to acceptance of the formula in its entirety but ruled that bonus is not a gratuitous payment made by the employer to the workmen, nor a deferred wage and, where the wages fall short of the living standard and the industry makes profit, part of which is due to the contribution of labour, a claim for bonus may legitimately be made by the workmen. It was for the first time in Associated Cement Compansies Ltd. v. Its Workmen, that the Supreme Court examined the Full Bench Formula in all its aspects and accepted it as laying down a valid principle for adjudicating claim for bonus. Since that decision, several cases came up before the Supreme. Court where the basic formula was accepted with some elaboration. The result was that, for the purpose of industrial adjudication, claim for bonus acquired the character of legal right. This was pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expression as used in section 2(m). But we do not propose to decide this question since we are of the view that even otherwise the liability to pay bonus does not become a "debt owed" by the employer until a claim is made by the workmen and it is settled by mutual agreement or industrial adjudication. Now, bonus which workmen are entitled to claim and the employer is liable to pay is not a liquidated sum of money which is merely ascertained by mutual agreement or industrial adjudication. Where a claim for bonus is made by the workmen and it is resisted by the employer, the first question which industrial adjudication would have to consider would be whether there is available surplus in the hands of the employer, for it is only if he has available surplus in his hands that the workmen would be entitled to receive bonus. There are several factors which would have to be considered by industrial adjudication in determining how the prior charges should be computed and what should be taken to be the amount of available surplus. Then industrial adjudication would have to decide what part of available surplus should be awarded to the workmen by way of bonus and in determining this quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , erroneous. The learned judges concluded that because there is a liability on the employer to pay bonus under the industrial law, it is a "debt owed" by the employer. But this conclusion is based on an assumption that every liability to pay necessarily constitutes a debt. That assumption is, as we have already pointed out above, plainly incorrect. Every liability to pay does not necessarily constitute a debt. We have to examine the nature of the liability in order to see whether it is for a liquidated amount or for an unliquidated amount. If it is the former, it is a debt but not so, if it is the latter. That aspect does not appear to have been examined by the learned judges presumably because it was not urged before them. We have no doubt that if this aspect had been placed before the learned judges, they would have come to a different conclusion as we are doing. Now, in the present case, it is apparent from the record that the claim of the workmen was settled and the amount of bonus determined subsequent to the relevant valuation date. This factual position was indeed not disputed on behalf of the assessee. If that be so, it must follow as a necessary consequence that liability ..... X X X X Extracts X X X X X X X X Extracts X X X X
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