1985 (2) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Application of Section 41(1) of the Income-tax Act, 1961.
2. Determination of cessation or remission of liability for unpaid bonus.

Summary:

Issue 1: Application of Section 41(1) of the Income-tax Act, 1961
The primary question was whether the sum of Rs. 50,061 representing unpaid bonus written back in the accounts could be assessed u/s 41(1) of the Income-tax Act, 1961, for the assessment year 1971-72. The Income-tax Officer added this amount to the total income of the assessee without any discussion. The assessee contended that the liability for the unpaid bonus had neither been remitted nor ceased, and thus, it could not be considered as income u/s 41(1). The Tribunal upheld the assessee's stand, stating that the liability for payment of bonus had neither ceased in law nor been remitted.

Issue 2: Determination of Cessation or Remission of Liability for Unpaid Bonus
The Commissioner of Income-tax (Appeals) and the Income-tax Officer assumed that the liability to pay the bonus had ceased, as the amount was written back to the profit and loss account. The Tribunal, however, found that the liability in the matter of payment of bonus had neither ceased nor been remitted. The court examined the provisions of the Bonus Act and Section 41(1) of the Income-tax Act, 1961, to determine whether the unpaid bonus could be considered as income. It was noted that the liability for bonus accrues annually and must be paid within a specified period unless there is a dispute. The court concluded that the liability for unpaid bonus cannot continue indefinitely and that the assessee's act of writing back the amount to the profit and loss account indicated a cessation of liability. The Tribunal was directed to re-examine the case in light of these principles and determine whether the unpaid bonus represented an excess of the requirement for payment to employees and the reasons for it remaining unclaimed for several years.

The Tribunal was instructed to dispose of the case based on the principles laid down in the judgment, with the option to take additional evidence if necessary. There was no order as to costs.