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Issues:
1. Allowability of bonus as deduction under section 10(2)(x) of the Indian Income-tax Act, 1922. Analysis: The case involved a private limited company operating a sugar mill, which provisioned a sum for bonus payment to workers for the assessment year 1961-62. The Income-tax Officer disallowed the deduction, citing that the liability for bonus was not ascertained before the close of the accounting year, relying on a Supreme Court decision. The Appellate Assistant Commissioner allowed the deduction based on past practices, but the Income-tax Appellate Tribunal overturned this decision, stating that the liability arose only after a government notification under the Industrial Disputes Act. The High Court emphasized that even under the mercantile system of accounting, a liability must be enforceable or capable of being ascertained to be deductible. The liability for bonus in this case arose only when the government issued the notification, not before. The court referred to a similar Supreme Court decision regarding bonus payment liability. The High Court highlighted that the liability for bonus arose due to a government notification under the Industrial Disputes Act, not the Bonus Act, as the latter was not in force at the relevant time. It was noted that the workers' claim for bonus was not accepted by the company initially, leading to the formation of a committee before the accounts closed, but the liability arose later with the government notification. The court clarified that the term "paid" in section 10(2)(x) of the Act includes both actual payment and incurred liability based on the accounting method. Drawing parallels with a Supreme Court case, the court ruled that the bonus claim was not admissible for the assessment year in question but for the succeeding year when the liability arose. In citing relevant case law, the High Court referenced decisions where deductions for liabilities like bonus payments were allowed only when the liability became enforceable or ascertained. The court disagreed with the view that a provision for bonus could be considered a debt before settlement or adjudication under the Industrial Disputes Act, aligning with the stance taken in previous Supreme Court judgments. The court emphasized that before the enactment of the Bonus Act, the liability for bonus payment only arose upon settlement or adjudication, not before. Ultimately, the court ruled against the assessee, upholding the department's disallowance of the bonus deduction and awarding costs to the Commissioner of Income-tax.
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