TMI Blog1984 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... e claimed deduction even for this amount of Rs. 2,03,177 in the computation of its taxable income, which was rejected by the ITO. An appeal to the AAC proved fruitless. The assessee then preferred a second appeal to the Tribunal. Before the Tribunal, it was contended by the assessee that the allocable surplus set apart by it in the balance-sheet was in discharge of a statutory obligation ; that the said amount belonged to the employees, payable in the future years and that, therefore, it should be allowed as deduction. The Tribunal rejected this contention, whereupon the assessee applied for referring two questions for the opinion of this court, viz: " (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the liability of the assessee towards bonus to its employees is limited to the extent of actual payment made out of the allocable surplus irrespective of the provisions of section 15 of the Payment of Bonus Act, 1965 ? and (2) Whether, on the facts and in the circumstances of the case, the balance of Rs. 2,03,177 standing to the credit of the bonus account is not an allowable deduction under the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Act. If in any succeeding accounting year, there is no available surplus, or allocable surplus, or the allocable surplus falls short of the minimum bonus, the amount so carried forward has to be utilised for paying the bonus. At the end of four years, however, the amount still remaining, if any, becomes the income of the assessee. In other words, the statutory obligation for setting on is confined only to four succeeding accounting years, whereafter the assessee is free to make such use of the amount, if any remaining, as it thinks fit. The Tribunal was of the opinion that this provision is " no more than a provision for a contingent liability in respect of the subsequent years " ; that this amount may not necessarily be required to pay bonus in the succeeding years and that, therefore, it cannot be allowed as an admissible deduction. The Tribunal observed that the existing liability of the assessee was only to the extent of actual amount of bonus payable, viz., Rs. 7,98,007, and that has been allowed as a deduction. Sri Ch. Sreerama Rao, the learned counsel for the assessee, submitted that, inasmuch as the said amount of Rs. 2,03,173 has been set apart pursuant to an ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, and also because, after the expiry of the prescribed period, the said amount or the balance, if any, becomes a part and parcel of the general revenues of the assessee, it is difficult to agree that the money is diverted from the assessee under an overriding legal obligation. The money is not paid to a third-party, nor is it paid into a fund from which it never comes back to the assessee; nor is the money meant exclusively for payment to the employees. It cannot also be said that this amount, so set apart, constitutes a " loss ", " expenditure " or a "trading liability " within the meaning of s. 41(1). If so, the said amount, as and when it comes back to the revenues of the assessee, cannot also be treated as its income under sub-s. (1) of s. 41, which circumstance also shows that this amount cannot be allowed as a deduction. This is for the reason that, if this amount is allowed as a deduction in this accounting year, and if this amount is not used up in the succeeding four accounting years and it comes back to the revenues of the assessee after the fourth year, it must be treated as its income in that accounting year. But that can be done only if the allowance of deduction ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration was obliged to pay, every year, out of its revenues, such sum as may be directed by the State Government for meeting any liability arising out of the use of any vehicle of the Corporation by third-parties. It was held that the amounts so paid into the fund are admissible deductions. But, that was a case where the moneys paid into the fund were lost for ever to the Corporation. At no stage would the money come back to the Corporation. In other words, it was a case of money being expended by the Corporation in pursuance of a statutory liability. It was not a case of a mere provision for a temporary period to meet a contingent liability, as in this case. The next case cited is in Poona Electric Supply Company Ltd. v. CIT [1965] 57 ITR 521 (SC). As required by the Electricity (Supply) Act, 1948, the Poona Electric Supply Company Ltd. a licensee under the Act, was obliged to create a " Consumers' Benefit Reserve Account ". It was held by the Supreme Court that the amount credited by the undertaking during the relevant accounting years, to the Consumers' Benefit Reserve Account, being a part of the excess amount paid to the undertaking, is reserved to be returned to the consume ..... X X X X Extracts X X X X X X X X Extracts X X X X
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