1997 (2) TMI 79 - HC - Income Tax

Assessment Year, Business Expenditure, Expenditure Incurred, Finding Of Fact, Hybrid System, Question Of Law

Summary

Issues:
1. Allowance of bonus liability for the assessment year 1970-71.
2. Allowance of staff welfare expenses for maintaining a temple on the premises.

Analysis:
1. The first issue pertains to the allowance of bonus liability for the assessment year 1970-71. The Income-tax Officer initially disallowed the claim for payment of bonus as the provision was not made in the relevant year, following the mercantile system of accounting. However, the Appellate Assistant Commissioner allowed the entire amount as a deduction, considering it a liability of the year 1970-71. The Tribunal upheld this decision, stating that the assessee maintained the bonus liability account on a cash basis or actual payment basis. The court held that the mere fact that the general accounts were maintained on a mercantile basis did not warrant disallowance of the claim, as the assessee was allowed to have a hybrid accounting system. The court concluded that the bonus liability, determined after the close of the accounting year, was admissible for deduction based on the system of accounting followed. Therefore, the court answered this question in the affirmative, in favor of the assessee.

2. The second issue concerns staff welfare expenses for maintaining a temple on the premises. The Tribunal found that the expenses incurred for maintaining a temple and organizing festivals like Navaratri were for the welfare of the workmen and aimed at better employer-employee relations. The Tribunal considered these expenses as employees' welfare expenditure qualifying for deduction. The court noted that determining whether specific expenses were for the welfare of employees was a factual inquiry and not a question of law. As the Tribunal's finding was based on facts and not legal interpretation, the court did not interfere with it. Consequently, the court answered the second question in the affirmative, in favor of the assessee and against the Revenue. No costs were awarded in this matter.