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Issues:
Assessment under Section 23(4) for the year 1950-51, Taxability of the difference in bonus liability between 1950-51 and 1957-58 under Section 10(2-A) of the Income Tax Act. Analysis: 1. The case involves the Tirunelveli Motor Bus Service, where an assessment was made under Section 23(4) for the year 1950-51, estimating the net income at Rs. 1,80,000, later reduced to Rs. 1,30,000. An amount of Rs. 71,949 was debited for bonus liability in 1950-51, but only Rs. 17,470 was paid in 1957-58, with the difference credited to the profit and loss account. 2. The Income Tax Officer included the difference in bonus liability in the assessment for 1957-58 under Section 10(2-A). The Appellate Assistant Commissioner and the Tribunal had differing views, with the Tribunal emphasizing the need to identify specific expenses already allowed in previous assessments for invoking Section 10(2-A). 3. The key question referred to the court was whether the difference in bonus liability of Rs. 54,479 was assessable in 1957-58 under Section 10(2-A). Section 10(2-A) deems any benefit obtained from a reduced trading liability to be taxable as profits, even if no specific deduction was made in earlier assessments. 4. The department argued that the estimate of net income in 1950-51 implied all entitled deductions were considered, justifying taxing the difference in bonus liability in 1957-58. Reference was made to a previous case where all expenses incidental to business were presumed to be considered in a best judgment assessment. 5. The assessee's counsel contended that no actual deduction was made in 1950-51, and the bonus liability was a provision, not a trading liability. However, the court noted that the assessee maintained accounts on the mercantile system, allowing for accrued liabilities to be debited against profits. 6. The court held that the best judgment assessment of net income in 1950-51 implied all entitled deductions were considered. Even though specific deductions were not mentioned, the net income calculation inherently included all allowable expenses, including the bonus liability. 7. Consequently, the court found the Tribunal's conclusion erroneous and ruled in favor of the department, allowing the taxation of the difference in bonus liability in 1957-58 under Section 10(2-A). The department was awarded costs. 8. The reference was answered affirmatively in favor of the department, concluding the judgment.
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