TMI Blog1981 (9) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be mentioned that, as for income-tax assessment purpose, the business loss was computed at Rs. 1,97,350. It was further contended on behalf of the assessee, before us, that the business loss was computed after disallowance of certain amount and after allowing depreciation of Rs. 1,87,897, which was necessary for income-tax purpose, but actually there was a business profit. In any event, we are not concerned, in the present reference, with that aspect but we are merely noting it because one argument was advanced before us which we shall presently indicate. In the appeal before the AAC, he held as follows : "5. The next ground of appeal is regarding the disallowance of provision for exgratia amount (compensation) totalling Rs. 1,32,795 which the ITO disallowed on the ground that this provision for exgratia compensation is a liability not ascertained and quantified and hence he disallowed it. The A/R of the company submits before me that the ITO was not justified in disallowing this provision for expenditure amounting to Rs. 1,32,795 on the ground that the liability was not ascertained and quantified without going into the details of this item. He further submits that this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the employees from receiving the minimum bonus as provided under section 10 of the Act. The appellant-company has not given any satisfactory reasons for bifurcating the payment of bonus into two parts and claiming the exgratia payment also as bonus which in fact it is not because nothing prevented the company from turning it into bonus as demanded by the employees' union unless it was a sort of payment which was left to the discretion of the management instead of turning it into an enforceable legal claim. In my opinion, therefore, the ITO was justified in disallowing this provision which did not become a legally enforceable liability till the end of this accounting year under appeal ; this liability should, therefore, be allowed in the year of actual payment." Being aggrieved by the order of the AAC, the assessee went up in appeal before the Tribunal. The Tribunal noted the rival contentions as also the contentions of the ITO and the AAC. The Tribunal held as follows: " 5. We have considered the rival submissions of the learned representative of the parties. The Bonus Act provided for the payment of minimum bonus but it left to the parties to settle at a higher rate. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal, could be attributed to it as a formal document was to be executed and until that was done the settlement would not become final or legally enforceable. , On behalf of the assessee it was contended that under the Payment of Bonus Act, 1965, as prevalent in the year in question, viz., 1969, there was a certain statutory liability to pay bonus, quite apart from the liability to pay a minimum bonus, which was the liability imposed by s. 10 of the Act. Section 10 enjoins payment of a minimum bonus irrespective of the fact whether the company or undertaking had made any profit or not. Under s. 11 and sub-s. (3) of s. 34, there was an obligation to pay bonus. Section 11 stipulated, in substance, that in respect of an accounting year, if certain profit had been made, the workmen were entitled to the payment of bonus in certain manner as indicated in the Second Schedule- the details of which we are not really concerned with- if ascertainable surplus was there and there was allocable profits. If that was not done, then under s. 34(3), as was prevalent in that year, the assessee was obliged to enter into an agreement for payment of the bonus. Therefore, it was contended, firstly, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of this court that: (a) workmen are entitled to make a claim to profit bonus if certain conditions are specified; (b) the workmen have to make a claim from year to year; (c) this claim has either to be settled amicably or by natural adjudication; and (d) if there is a loss or if no claim is made, no bonus will be permissible." This case, however, was rendered before the coming into operation of the Payment of Bonus Act, 1965. Our attention was also drawn to the observations of the Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC), where the Supreme Court reiterated that the undertaking to carry out the developments within six months from the dates of the deeds of sale, which, in view of the fact that time was not of the essence of the contract, meant a reasonable time was unconditional and the appellant bound itself absolutely to carry out the same. Therefore, there was an accrued liability that should be allowed, and there was no question about it. The facts of that case were entirely different from the instant case. Oar attention was drawn to the decision in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53; 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the calendar year 1956 relevant to the assessment year 1957-58. The assessee had made a provision for payment of bonus of a sum of Rs. 1,50,000 for the year 1956, on the basis of 3-3/4 months' wages. The actual bonus which was paid subsequently was Rs. 1,98,993 equivalent to 5 months' wages. The claim of the assessee for deduction of the entire amount paid as deduction was negatived by the officer. The AAC and the Tribunal, however, held that the assessee was entitled to the deduction of only Rs. 1,50,000 provided in the accounts and not the balance of Rs 48,993 which had neither been provided for in the accounts nor was it an accrued liability. On a reference to the High Court at the instance of the Department regarding the allowability of Rs. 1,50,000 being the provision for bonus, it was held that as the provision of the sum of Rs. 1,50,000 made in the accounts was not towards any liability for bonus incurred under an award or a settlement by agreement arrived at between the employer and the employee, the amount was not an admissible deduction in law, even though the assessee was adopting the mercantile system of accounting. On the other hand, on behalf of the assessee, relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts on the mercantile basis did not make any entry towards bonus for the calendar year 1951, but, on a dispute regarding bonus payable to the workers for that year being referred to the conciliation board, the board, by its award in June, 1952, directed the company to pay bonus out of the profits for that year, and the company in making the return claimed to deduct for the year 1951, the bonus which it distributed in December, 1952, against the last item of Pt. IV of the income-tax return. It was held that as under s. 10(5) of the I.T. Act actual payment was not necessary for the purpose of deduction and it was sufficient if the liability to bonus was incurred according to the method of accounting upon the basis of which the profits or gains were computed, the company was entitled to the deduction of the bonus paid from the profits for the year 1951, even though the amount had not been entered in its accounts for that year. This proposition cannot be disputed. Liability incurred for that year, even though not included in the accounts made for that year, would not disentitle the assessee to claim bonus. The main question is : was there any liability incurred in the accounting year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this provision had not been made pursuant to any agreement entered into or any award passed during the year. In second appeal, the Appellate Tribunal observed that the matter related to the bonus for the current year, that the same was an existing liability and had to be allowed as such and that the claim of the assessee would thus be allowed. On a reference it was held that the Tribunal had gone only on the basis that there was a provision for bonus in the accounts of the assessee. There was no finding that in the particular year there had been any payment of bonus though bonus had been paid in other years. There was no indication as to the basis on which the bonus which had been provided for in the accounts was arrived at, viz., whether it was on the basis of mere claims made by the employees or whether it was on the basis of the accepted and past practice of the company or whether such provision had been made pursuant to any understanding or agreement between the assessee and its workmen: It was not even found whether this provision for bonus had been made pursuant to any resolution of the directors or the shareholders of the assessee. The court held that if it was found on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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