TMI Blog1964 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, is a limited company which owns and runs a textile mill at Indore. For the assessment year 1950-51 (accounting year calendar year 1949), which was its first year of assessment under the Indian Income-tax Act, 1922 (hereinafter referred to as the Act), it claimed that under section 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther found that " up to 1946 when the order for payment of bonus used to be received before the company's accounts for the year were finalised, the amount of bonus used to be in fact debited to the profit and loss account of the respective year." This finding is repeated by the Appellate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the mercantile system, the question, using for the time being the terms of the clauses, comes to this : " Has this sum of Rs. 1,08,325 been incurred by the assessee according to the mercantile system in the calendar year 1947 or 1949 ? " At first sight. the sentence does not read well, but 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is due to the contribution of labour, a claim for bonus can be legitimately made. In 1961, this court was able to say that " the right to claim bonus which has been universally recognised by industrial adjudication in cases of employment falling under the said Act has now attained the status of a legal 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scheme of the Indian Income-tax Act. We have already held in Commissioner of Income-tax v. Gajapathy Naidu that, as far as receipts are concerned, there can be no reopening of accounts. The same would be the position in respect of expenses. But even in England accounts are not opened in every case. Halsbury gives various 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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