1999 (12) TMI 36 - HC - Income Tax

Summary

Issues:
Interpretation of Income-tax Act, 1961 regarding the admissibility of bonus on accrual basis vs. payment basis for a co-operative society.

Analysis:
The High Court of Madras was presented with a case referred by the Income-tax Appellate Tribunal regarding the assessment of a co-operative society for various years. The main issue was whether the claim for bonus by the assessee should be admissible on an accrual basis or a payment basis. The assessee had made a provision for bonus payable under the Payment of Bonus Act, but the Income-tax Officer disallowed the provision and allowed only the actual payment of bonus. The Commissioner (Appeals) directed the Income-tax Officer to allow bonus on an accrual basis. The Appellate Tribunal upheld this decision, stating that the assessee could claim deduction based on the provision made in the accounts, considering the method of accounting regularly followed by the assessee.

The Department argued that allowing the deduction both at the time of provision and payment would result in double deduction, citing a decision of the Allahabad High Court. However, the respondent's counsel contended that the assessee had consistently maintained its books of account and was entitled to claim deduction based on the provision made in the accounts without claiming double deduction. The accounts were audited, and the statutory auditors issued certificates supporting the provision made by the assessee.

The High Court observed that there was no dispute regarding the quantum of bonus payable and emphasized that the employer is obligated to pay statutory bonus. The court concluded that the assessee, following a regular system of accounting accepted by the Department, was entitled to claim deduction based on the provision made in the accounts. The court upheld the decision of the Appellate Tribunal, stating that the assessee should follow the liability method consistently for subsequent assessment years to avoid double deduction. The court found no error of law in the Tribunal's order and ruled in favor of the assessee, allowing the deduction for the provision of bonus.