9911796707
|
Home
Issues Involved:
1. Deduction of bonus paid to employees for the calendar year 1947 in the assessment year 1950-51. 2. Application of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, in computing the written-down value of assets. Issue-wise Detailed Analysis: 1. Deduction of Bonus Paid to Employees for the Calendar Year 1947 in the Assessment Year 1950-51: The assessee, a limited company owning a textile mill, paid Rs. 1,08,325-9-3 as bonus to its workers for the calendar year 1947, which was awarded on 13th January 1949. The company debited this amount in its profits and losses account for the year 1948. The primary issue was whether this bonus could be deducted in the assessment year 1950-51. The Income-Tax Officer disallowed the claim, stating that the assessee maintained its accounts on a mercantile basis, not on a cash basis, and thus the bonus for 1947 could not be deducted in 1950-51. The Appellate Assistant Commissioner and the Tribunal upheld this view, emphasizing that the liability for the bonus became definite only when the Industrial Court's award was made in 1949. The Court analyzed Section 10(2)(x) of the Income-tax Act, which allows deductions for sums paid as bonus or commission. According to Section 10(5), "paid" means actually paid or incurred according to the method of accounting adopted. The Court noted that the assessee's method of accounting, though not strictly mercantile, was accepted by the taxing authorities for determining true profits. The Court concluded that the liability for the bonus amount became a definite obligation only when the Industrial Tribunal made its award on 13th January 1949. The liability did not materialize in 1947, nor could it be foreseen. The Court cited several cases, including *Calcutta Co. Ltd. v. I.T. Commr.*, *Senthikumara Nadar and Sons v. Commr. of Inc.-Tax*, and others, to emphasize that deductions are not permissible for contingent liabilities. Therefore, the assessee was entitled to claim the deduction in the assessment year 1950-51. 2. Application of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950: The second issue concerned the computation of the written-down value of the assessee's assets. The Income-tax Officer computed the value by deducting the depreciation already allowed under the Industrial Tax Rules of the former Holkar State, as per paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. The assessee contended that this paragraph was ultra vires and that the value should have been computed under Section 10(2)(vi) of the Income-tax Act. The Court referred to a recent Supreme Court decision in *The Commissioner of Income-tax, Hyderabad v. Dewan Bahadur Ramgopal Mills Ltd.*, which upheld the validity of the Explanation to paragraph 2 of the Order. The Supreme Court observed that it was for the Central Government to determine if any difficulty in applying Section 10(5)(b) to an assessee in a Part B State had arisen and that Parliament had left this matter to the executive. The Court concluded that the power given to the Central Government under Section 12 of the Finance Act, 1950, was broad enough to permit substantial modifications if necessary for removing difficulties. Thus, the Court held that paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was valid and applicable to the assessee. Conclusion: Both questions referred to the Court were answered in the affirmative. The assessee was entitled to claim the deduction of the bonus amount in the assessment year 1950-51, and the provisions of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, were applicable in computing the written-down value of its assets. The assessee was awarded costs of the reference, with counsel's fee fixed at Rs. 250.
|
