1966 (10) TMI 7 - HC - Income Tax

Accounting year - Whether the amount of Rs. 6, 975 awarded by the Labour Appellate Tribunal in a subsequent year was allowable as a deduction in the assessment year in question - Held no

Summary

Issues:
1. Deductibility of bonus amount awarded by Labour Appellate Tribunal in a subsequent year as a deduction in the assessment year in question.

Detailed Analysis:
The case involved a private limited company engaged in manufacturing woollen rugs, blankets, and cloth. The company claimed a deduction of bonus amounting to Rs. 16,275 in the assessment year 1952-53, representing the bonus for the accounting year ended on 30th June, 1949. The workers demanded bonus for the half-year ending on 30th June, 1949, during the accounting year ending on 30th June, 1951. The conciliation officer awarded a bonus of Rs. 9,300 for the half-year ended 30th June, 1949, which was later increased to Rs. 16,275 by the Labour Appellate Tribunal on 8th August, 1951. The Income-tax Officer disallowed the entire bonus amount as it was awarded after the close of the accounting year, leading to a dispute over the deductibility of the bonus amount.

The Appellate Assistant Commissioner allowed the deduction of Rs. 9,300 as it was awarded within the accounting year and disallowed the balance of Rs. 6,975, considering it as not an ascertained liability in the relevant accounting year. The Tribunal upheld the decision of the Appellate Assistant Commissioner, disallowing the deduction of Rs. 6,975 against the profits of the relevant assessment year but allowed it in the subsequent assessment year. The assessee sought a reference under section 66(1) of the Income-tax Act, which was refused, leading to an application under section 66(2) of the Act for the court's direction to refer the question.

The court considered the conflicting views in Commissioner of Income-tax v. Nagri Mills and Commissioner of Income-tax v. Swadeshi Cotton and Flour Mills. The Supreme Court's decision in the latter case established that an employer following the mercantile system of accounting incurs the liability to pay bonus only when the claim is settled amicably or by industrial adjudication. The court, in line with the Supreme Court's decision, held that the bonus amount awarded by the Labour Appellate Tribunal in a subsequent year was not allowable as a deduction in the assessment year in question. The court referenced similar decisions in New Victoria Mills Co. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Amrit Banaspati Co. Ltd. to support its conclusion.

In conclusion, the court answered the question regarding the deductibility of the bonus amount in the negative, ruling against the assessee. No order as to costs was issued, and the counsel's fee was assessed at Rs. 200.