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TMI Blog1966 (2) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting adopted by the assessee, these deductions were allowed. Now, it so happened that certain portion of such wages, salary and bonus relating to which deductions were allowed, were not drawn by the employees, and certain amounts had remained undrawn and unpaid to the employees. The position at the commencement of the relevant account period was that a sum of Rs. 5,929 in respect of which deductions had already been allowed in prior years of assessment had remained undrawn and unpaid to the employees. The said sum of Rs. 5,929 was the aggregate of certain amounts, which had been allowed as deductions during the accounting periods June 30, 1945, to June 30, 1953. Now, at the commencement of the accounting period for the assessment year 1958-59, i.e., in the account year commencing from July 1, 1956, the said amount of Rs. 5,929 was carried forward in the books of account of the company and at the close of the accounting period, i.e., June 30, 1957, the assessee-company transferred the said sum of Rs. 5,929 to the credit of its profit and loss account for the said year, i.e., account year, July 1, 1956, to June 30, 1957. The Income-tax Officer included the said amount of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 10(2A) of the Act. According to Mr. Kolah, the liability which the assessee-company had incurred in respect of wages, salaries and bonus payable by the assessee-company to its employees had neither been remitted by them nor has that liability ceased to exist. The mere reversal of the entries on the part of the assessee in its books of account cannot have the effect of either "remission or cessation" of the liability. Mr. Kolah further stated that the facts of the present case before us are similar to the facts of the case decided by us in Kohinoor Mills Co. Ltd. v. Commissioner of Income-tax and the decision in that case would govern the present case. Mr. Joshi does not dispute the correctness of the decision in the afore said case, but according to him that decision has no application to the facts of the present case. He contended that the said decision is distinguishable on facts inasmuch as the entries made in respect of the accrued liabilities in the books of Kohinoor Mills, which was maintaining its accounts on mercan tile basis, had continued to show the said amounts in its books of account as a liability. The Kohinoor Mills had not reversed the entries and tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question to be considered is whether it is "deemed income" within the meaning of section 10(2A). The material part of section 10(2A) is in the following terms: "Where for the purpose of computing profits or gains under this sec tion, an allowance or deduction has been made in the assessment for any year in respect of any.... trading liability incurred by the assessee and, subsequently during any previous year, the assessee has obtained some benefit in respect of such trading liability by way of remission or cessation thereof, the value of the benefit accruing to him shall be deemed to be profits and gains of business and to have accrued or arisen during that previous year." It is not disputed, and it cannot be disputed, that the first condition has been satisfied. The assessee had, in fact, in the computation of its profits and gains of earlier years, obtained deduction in respect of the said amount aggregating to Rs. 5,929 as a trading liability accrued to it in respect of wages, salaries, bonus, etc., payable to its employees. The question to be considered is whether in the account year relevant to the assessment year, with which we are concerned here, the assessee has received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor payment of the liability. We have already held in Kohinoor Mills case that the mere fact of the expiry of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under section 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees: Bombay Gas Co. Ltd. v. Gopal Bhiva. We may also incidentally refer to the provisions of the Bombay Labour Welfare Funds Act, 1953. In the year 1953 the State legislature enacted an Act to provide for the constitution of a fund for the financing of activities to promote welfare of labour in the State of Maharashtra for conducting such activities and for certain other purposes. The Act came into force on 17th June, 1953. It is not necessary to go in detail into the provisions. It would be sufficient to note a few provisions thereof. Sub section (10) of section 2 provides: " 'Unpaid accumulations' means all payments due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat what is shown as the liability in the books of account of the assessee or what has been shown as the income in the books of account of the assessee would necessarily be liability or income within the meaning of the Act. The two principal methods of accounting known in the commercial world is the cash system and the mercantile system, i.e., maintaining of accounts on the accrual basis, that is, when the liability has accrued, showing it as a liability in the books of account irrespective of the fact whether the expenditure has been incurred or not, or the liability has been discharged or not. Similarly, showing to the credit side, the income that has accrued irrespective of the fact that the income has been received by the assessee or not, and the computation has to be made on that basis. The inclusion of the income that has accrued due in the total income of the assessee does not depend on its being shown as income in the books of account when the system of accounts is the mercantile one. Section 13 only provides that the computation of the income has to be made in accordance with the method of accounting regularly employed by the assessee. The decision on which Mr. Joshi has p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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