TMI Blog1978 (4) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... 1967-68 and 1968-69, for which the previous years ended on Diwali of 1966 and Diwali of 1967, respectively. The dispute relates to the claim made on behalf of the assessee by way of deduction of certain amount as provisions for payment of bonus. For the assessment year 1967-68, the amount claimed as deduction on this account is Rs. 2,52,720 and for the assessment year 1968-69, Rs. 80,820. These claims were disallowed by the Income-tax Officer on the ground that no payment whatsoever was made by the assessee by way of bonus to its employees and the amount was swelling year after year and that not even a pie had been paid in four years. In appeals, the Appellate Assistant Commissioner held that the claim for provision by way of bonus was an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28--......... (ii) 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 : Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (XXI of 1965), apply shall not exceed the amount of bonus payable under that Act :........" Another relevant statutory provision is section 43(2) of the Act, which defines the word " paid " as follows : (2) ' Paid ' means ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually paid or that a legal liability for payment had been incurred during the accounting year. It necessarily follows that a provision for bonus would not qualify for deduction under section 36(1)(ii) even when accounts are maintained according to the mercantile system until it is shown that the assessee had really incurred the liability for payment of bonus. A liability for bonus can be incurred under a statute, an award, an agreement or a settlement. The assessee must satisfy the income-tax authorities that the provision for bonus made by him was covered by any such liability before he is held entitled to its deduction under section 36(1)(ii) [see Commissioner of Incowe-tax v. Somasundaram Mills (P.) Ltd. [1974] 95 ITR 365 (Mad) and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was really covered by any liability incurred by the assessee under the Payment of Bonus Act or an award or settlement. The view taken by the Appellate Assistant Commissioner and the Tribunal that simply because the assessee maintained its accounts according to the mercantile system, it was entitled to claim deduction of the amounts shown as provision for bonus in the account years is not sustainable. Without examining the question that the provision was in respect of a legal liability incurred for bonus, the assessee's claim for deduction could not have been allowed. As this important aspect of the case has not been examined by the income-tax authorities, we are not in a position to answer the questions referred to us. All that we can do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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