1998 (3) TMI 19 - HC - Income Tax

Summary

Issues:
1. Deduction of provision for bonus in computing total income of the assessee for the assessment year 1973-74.

Detailed Analysis:
The judgment pertains to the deduction of a provision for bonus in computing the total income of an assessee for the assessment year 1973-74. The assessee, engaged in insurance business and assessed as an association of persons, made a provision of Rs. 44,541 towards bonus for the relevant accounting year ending on December 31, 1972. The Income-tax Officer rejected the claim, contending that allowing both the provision and actual payment of bonus as deductions would result in an incorrect reflection of the assessee's income. The Commissioner of Income-tax (Appeals) disagreed, stating that the provision for bonus was justified as it was the last year of the assessee's business before merging with another entity. The Income-tax Appellate Tribunal upheld this view, emphasizing that the provision for bonus was a revenue charge and its disallowance would distort the computation of the assessee's income.

The main contention raised by the Revenue was that allowing deductions for both the provision and actual payment of bonus would lead to an inaccurate representation of the assessee's income. However, the court noted that the liability towards bonus had crystallized due to the business takeover, and the provision was necessary to ascertain the real income of the assessee for the relevant accounting year. The court emphasized that the provision for bonus was a legitimate deduction, essential for accurately computing the business income of the assessee. It was clarified that claiming both the provision and actual payment did not amount to double deduction, as the provision was made based on the accrued liability during the last accounting year of the assessee's business.

In conclusion, the court held that both the Commissioner of Income-tax (Appeals) and the Tribunal correctly determined that the provision for bonus should be allowed as a deduction in computing the total income of the assessee for the assessment year 1973-74. Therefore, the question of law was answered in favor of the assessee, entitling them to costs of Rs. 750.