Issues: - Deduction of bonus for the year 1951 in computing business profits for the assessment year 1952-53.
Analysis: The case involved a dispute regarding the deduction of a bonus of Rs. 1,80,000 for the year 1951 in computing the business profits for the assessment year 1952-53 under the Income-tax Act. The assessee, a company, maintained accounts on a mercantile basis and did not make a provision for the bonus in the account books for the year 1951. However, the company claimed the deduction in their return as an allowable expense. The Department contended that since the bonus was not paid or debited in the accounts for the accounting year 1951, it was not deductible for the assessment year 1952-53. The question before the court was whether the assessee was entitled to the deduction of the bonus amount.
The court examined the provisions of section 10(2) and section 10(5) of the Income-tax Act. Section 10(2)(x) allows a deduction for "any sum paid to an employee as bonus," which implies actual payment. However, section 10(5) defines "paid" as "actually paid or incurred according to the method of accounting." The court noted that under the mercantile system of accounting, the liability for bonus is treated as an expense when incurred, regardless of actual payment. The court emphasized that the absence of an entry in the accounts for the provision of bonus did not affect the entitlement to the deduction.
The court further referred to the prescribed form of return, which allows for the deduction of "any other allowable expense which has not been charged in arriving at the profits." Since the bonus amount was determined by the conciliation board and was a legitimate expense not included in the profit and loss account, the court held that the assessee was entitled to the deduction. The court criticized the Income-tax Department for disputing such permissible deductions and clarified that the timing of the deduction did not impact the tax liability, as the tax rate is uniform for company income.
In conclusion, the court answered the question in the affirmative, stating that the assessee was entitled to the deduction of the bonus amount for the year 1951 in computing the business profits for the assessment year 1952-53. The Tribunal's decision in allowing the deduction was upheld, and the Income-tax Commissioner was directed to pay costs.
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