TMI Blog1989 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... late authority. In the past, like claims made by the assessee were allowed in the assessment years 1966-67 to 1969-70 and in the assessment years 1970-71 to 1973-74. The Tribunal, therefore, directed the Income-tax Officer to recompute, the amounts in the assessment years 1972-73, 1973-74 and 1975-76. The assessee thereupon was heard to protest that the assessee adopted the mercantile method of accounts and without any ostensible reason if assessments are reopened, the interests of the assessee will be adversely affected. Finally, at the instance of the assessee, under sub-section (1) of section 256, the following three questions are referred to this court : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in reversing the order of the Appellate Assistant Commissioner and disallowing the statutory liability of bonus set-on computed according to the provisions of the Payment of Bonus Act, 1965 ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disregarding and rejecting the method of accounting regularly employed by the appellant company ? (iii) Whether, on the facts and in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a boom in the trade and workmen were paid bonus. After the Second World War, the conceptual question resurfaced. The Labour Courts in the country held that textile mills which did not earn profits need not pay bonus. The other mills were ordered to pay bonus. The issue whether bonus was a right continued to be raised. In cases where bonus was paid, the issue relating to the methods adopted for ascertainment of profits was raised; whether depreciation and rehabilitation amounts were to be deducted before profit was declared. In some cases, interest paid on capital and working capital was deducted and such deductions were disputed. In 1958, the Supreme Court in State of Mysore v. Workers of Gold Mines, AIR 1958 SC 923, held that bonus was not a gratuitous payment nor was bonus deferred wage. With this dicta, the conceptual controversy came to an end. But, in this case, methods adopted for ascertainment of bonus were not considered. That aspect was scrutinised in Associated Cement Companies Ltd. v. Their Workmen, AIR 1959 SC 967, and by and large what was held by the Labour Courts were approved. The disputes did not abate and instead they spread into all industrial fields in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of bonus for the year under the Payment of Bonus Act, 1965 1,07,200 2. 1965-66 1967-68 . . . 1,35,300 3. 1966-67 1968-69 . . . 1,64,800 4. 1967-68 1969-70 . . . 1,85,200 ---------------- 5,92,500 5. 1968-69 1970-71 Set-on of 1964-65 credited to profit and loss account after expiry of four year period 1,07,200 ---------------- 4,85,300 . . . 2,06,032 ---------------- 6,91,332 6. 1969-70 1971-72 Set-on of 1965-66 credited to profit and loss account after expiry of four year period 1,35,300 ---------------- 5,56,032 2,00,279 ---------------- 7,56,311 7. 1970-71 1972-73 Set-on of 1966-67 credited to profit and loss account after expiry of four year period 1,64,800 ---------------- 5,91,511 . . . 2,26,060 ---------------- 8,17,571 8. 1971-72 1973-74 Set-on of 1967-68 credited to profit and loss account after expiry of four year period 1,85,200 ---------------- 6,32,371 . . . 3,92,355 ---------------- 10,24,726 9. 1972-73 1974-75 Set-on of 1968-69 utilised for payment of bonus 2,06,032 ---------------- 8,18,694 10. 1973-74 1975-76 Set-on of 1969-70 credited to profit and loss account after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax paid by the assessees under the Wealth-tax Act was expenditure. The dictum in the case was very widely answered to hold in the negative. In Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735, 747, that case was explained later. When an assessee possessed assets connected with business and unconnected with business, the wealth-tax paid for the former alone was expenditure and taxes paid in connection with the latter is not expenditure. The next case is CIT v. Walchand and Co. (P.) Ltd. [1967] 65 ITR 381 (SC), where two difficult expressions "commercial expediency" and "reasonableness of expenditure" were considered. The question of reasonableness juxtaposed with expenditure is often disputed in fiscal cases. The court pointed out that commercial expediency and reasonableness have to be viewed not from the Revenue point of view. This was emphasised-so as not to get obsessed with the interests of the Revenue but is to be looked at from the point of view of business. In looking at the business, it is implied not (sic) to look at the businessman's point of view. These interdictions and aids are explained in that case. These are thorny problems no doubt but these aspects do help the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is from the Kerala High Court in P. K. Mohammed Pvt. Ltd. v. CIT [1986] 162 ITR 587 where the set-on amount was construed to be deposits made under the compulsion of a statute to satisfy a contingent liability to be paid in future. The amount is retained by the assessee and the assessee is shown to hold the amount and the amount is not expended. To this aspect, we will return anon. Learned counsel for the assessee in this case argued that the set-on amount is not prohibited to be deducted under section 40(a)(ii) and, therefore, such amounts are expenditure for the business. Learned counsel elaborated that the assessee cannot utilise the amount and in that sense the assessee has parted with the amounts irretrievably. This plea, we consider, is the nub of the issue raised in the instant reference. Standing counsel for the Revenue argued that the amount is a reserve fund. The amount stands deposited in the account books of the assessee. The amount can be utilised by the assessee and, therefore, is not an expenditure. Such an amount, it is argued, is to be paid in future and cannot be allowed either under section 28 or under sections 30 to 36 or under section 37 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC). We may also state that we are looking at the issue from the point of view of business in CIT v. Walchand and Co. (P.) Ltd. [1967] 65 ITR 381 (SC). Thus, we hold that the amount which cannot be utilised and deposited perforce under the statute, in our view, is expenditure. If the assessee utilises or uses the amount in such a case, it would be a contravention of the Act and he would be liable to be punished under section 28 of the Act. He can be imprisoned, fined or inflicted with both the punishments. The next point that has been argued on behalf of the assessee is on the basis of "commercial expediency". We have answered earlier that the apex court stated that whether it is an expenditure or not has to be looked at from the Perspective of a businessman, not from the perspective of the Revenue and if we look at the matter from that perspective, as we have concluded, the set on amount is not available for business. This answer, we are conscious, does not cover on all fours the expression of "commercial expediency". We have earlier referred that this expression takes more than one concept and we may have to grappl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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