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TMI Blog1964 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 10(2)(x) of the Act it was entitled to an allowance in respect of the sum of Rs. 1,08,325 which it had paid as bonus for the year 1947 in the calendar year 1949, as a result of the award of the Industrial Tribunal, dated January 13, 1949. The claim of the assessee was not accepted by the income-tax authorities. The Appellate Tribunal held that it was a liability relating to an earlier year and not the year 1949. However, on an application by the assessee it stated a case and referred two questions. We are concerned only with one which reads thus : "Whether on the facts and in the circumstances of the case the assessee is entitled to claim a deduction of bonus of Rs. 1,08,325 relating to the calendar year 1947 in the assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in its appellate order. On these facts the learned counsel for the appellant, Mr. Sastri, contends that according to the mercantile system of accounting, which is followed by the assessee, and on which its profits have been computed for the accounting calendar year 1949, the year to which the liability is properly attributable is the calendar year 1947 and not 1949. He says that it was a legal liability of the assessee which arose in 1947 and should have been estimated and put into the accounts for 1947. In the alternative he has invited us to reopen the accounts for the year 1947, following the practice which, according to him, obtains in England. In our opinion the answer to the question must depend on the proper interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the meaning of the word " incur " includes " to become liable to ". Therefore, the question boils down to : " In what year did the liability of this sum of Rs. 1,08,325 arise according to the mercantile system ? " The mercantile system of accounting was explained in a judgment of this court in Keshav Mills Ltd. v. Commissioner of Income-tax thus : " That system brings into credit what is due, immediately it becomes legally due and before it is actually received, and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. " These observations were quoted with approval in Calcutta Co. Ltd. v. Commissioner of Income-tax. On the facts of this case, then when did the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right. Bonus can be claimed as a matter of right provided of course by the application of the Full Bench Formula it is shown that for the relevant year the employer has sufficient available surplus in hand " (vide Gajendragadkar J., as he then was, in Workmen v. Hercules Insurance Co.). In Indian Tea Association v. Workmen this court held that " the profit bonus can be awarded only by reference to a relevant year and a claim for such bonus has therefore to be made from year to year and has to be settled either amicably between the parties or if a reference is made, it has to be determined by industrial adjudication. A general claim for the introduction of profit bonus cannot be made or entertained in the form in which it has been done in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious instances in foot-note (m) at page 148, Vol. 20. Mr. Sastri has relied on various English cases but it is unnecessary to refer to them as Lord Radcliffe explains the position in England, in Southern Railway of Peru Ltd. v. Owen, thus: " The courts have not found it impossible hitherto to make considerable adjustments in the actual fall of receipts or payments in order to arrive at a truer statement of the profits of successive years. After all, that is why income and expenditure accounting is preferred to cash accounting for this purpose. As I understand the matter, the principle that justified the attribution of something that was, in fact, received in one year to the profits of an earlier year, as in such cases as Isaac Holden and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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