1984 (6) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Disallowance of provision made for bonus.
2. Applicability of Section 15 of the Payment of Bonus Act, 1965.
3. Allowability of the balance amount as a deduction under the Income-tax Act, 1961.

Detailed Analysis:

1. Disallowance of Provision Made for Bonus:
The primary issue was whether the disallowance of Rs. 2,03,173 out of the provision made for bonus in the balance-sheet for the assessment year 1972-73 was justified. The assessee, a public limited company running a spinning mill, made a provision of Rs. 10,02,180 towards bonus under the Payment of Bonus Act, 1965. The maximum bonus payable was Rs. 7,98,007, leaving a balance of Rs. 2,03,177, which was carried forward as contemplated by Section 15 of the Act.

2. Applicability of Section 15 of the Payment of Bonus Act, 1965:
Section 15 of the Payment of Bonus Act, 1965, provides for "set on" and "set off" of allocable surplus to ensure consistent payment of bonus over the years. The excess allocable surplus, subject to a ceiling of 20%, must be carried forward for up to four accounting years to be utilized for bonus payments. The Tribunal opined that this provision is "no more than a provision for a contingent liability in respect of the subsequent years" and cannot be allowed as an admissible deduction.

3. Allowability of the Balance Amount as a Deduction under the Income-tax Act, 1961:
The assessee argued that the amount set apart under an overriding statutory obligation should be allowed as a deduction either under Section 37 or Section 28 of the Income-tax Act, 1961. The Tribunal rejected this contention, stating that the existing liability was only to the extent of the actual bonus payable, which had been allowed as a deduction. The court agreed with the Tribunal, noting that the amount set apart is not diverted under an overriding legal obligation and does not constitute a "loss," "expenditure," or "trading liability" within the meaning of Section 41(1). Therefore, it cannot be allowed as a deduction.

The court also reviewed several case laws cited by the assessee, including Metal Box Company of India Ltd. v. Their Workmen, CIT v. Bombay State Road Transport Corporation, Poona Electric Supply Company Ltd. v. CIT, Cochin State Power & Light Corporation Ltd. v. CIT, and Amalgamated Electricity Company Ltd. v. CIT. The court found that these cases were distinguishable as they involved either actual expenditure or amounts permanently lost to the assessee, unlike the temporary provision in the present case.

Conclusion:
The court concluded that the amount "set on" in pursuance of Section 15 of the Payment of Bonus Act is not a permissible deduction for the accounting year relevant to the assessment year 1972-73. The question referred was answered in the affirmative, in favor of the Revenue and against the assessee. No costs were awarded.