1985 (5) TMI 73 - AT - Income Tax

Summary

Issues:
1. Whether the bonus payable for a specific year should be allowed as a deduction in a different assessment year.
2. Interpretation of Section 36 and Section 19 of the Payment of Bonus Act, 1965.
3. Determination of the accrual of liability for bonus payment and the relevance of government orders under Section 36.

Detailed Analysis:
1. The appeals before the Appellate Tribunal ITAT Bangalore involved the question of allowing bonus payable for the assessment years 1977-78 to 1979-80 as deductions in those respective years. The assessee claimed that the bonus payable for the assessment year 1974-75 should have been allowed in the assessment year 1977-78 as it was payable in September 1976. However, the claim was rejected by the Income Tax Officer (ITO) on the grounds of the accounting system followed by the assessee and the relevant provisions of the Payment of Bonus Act, 1965. The Commissioner (Appeals) also upheld the decision of the ITO, leading to the appeals before the Tribunal.

2. The Tribunal analyzed the provisions of Section 36 and Section 19 of the Payment of Bonus Act, 1965, to determine the accrual of liability for bonus payment. Section 36 provides the power of exemption to the government for certain establishments from the provisions of the Act based on public interest. The Tribunal clarified that Section 36 does not refer to postponement of the liability to pay bonus but rather to total exemption from the Act for a specified period. On the other hand, Section 19 specifies the time limit for payment of bonus, allowing for extensions under specific conditions. The Tribunal emphasized that a postponement of payment does not negate the accrual of liability, as the bonus becomes due and payable in the relevant accounting year.

3. The Tribunal concluded that the liability for bonus payment did not accrue in the accounting years relevant to the assessment years 1977-78, 1978-79, and 1979-80 based on the analysis of Section 19 and Section 36. The Tribunal dismissed the appeals of the assessee for all three years, affirming the decisions of the lower authorities. The judgment highlights the distinction between the accrual of liability and the timing of payment, emphasizing the importance of statutory provisions in determining the allowability of deductions for bonus payments in income tax assessments.