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TMI Blog1961 (11) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... orkers relating to the payment of bonus for the calendar year 1948. An award was made by the Industrial Tribunal on October 24, 1951. It was published in the Fort St. George Gazette on December 4, 1951. Part of the amount debited by the assessee company relates to the amount of bonus directed to be paid under this award. It appears that the Southern India Mill Owners' Association of which the assessee is a member passed a resolution advising its members to pay bonuses for the years 1949 and 1950 of an amount equivalent to two months' basic wages. The quantum computed or estimated by the assessee towards such bonus payment for the year 1950 came to ₹ 33,671-11-9. This amount of bonus was actually paid by the company only after the 1st of January, 1952. The amount of bonus which became payable as a result of the award for the year 1948 was ₹ 32,220-8-9. This amount also was paid by the assessee company only after the close of the account year. It is in respect of these liabilities that the company purported to make a provision in the accounts relevant to the assessment year and sought to deduct a sum of ₹ 70,000 from its returned income. The question acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above. In Associated Printers (Madras) Private Ltd. v. Commissioner of Income-tax [1961] 43 I.T.R. 281 a similar question arose. The assessee in that case took over a running business at a time when a dispute between the workmen and the predecessor-in-interest of the assessee was pending adjudication by the Industrial Tribunal. The Tribunal directed payment of 1? months' basic wages as bonus. In respect of the Deepavali bonus also, an agreement had been entered into between the assessee and its workers. The total of these amounts, part of which was covered by the award and part by the agreement, was debited in the assessee's accounts which were maintained on the mercantile system. In the accounting year January 31, 1952, the question arose as to whether this amount was deductible in the assessment for the relevant assessment year 1952-53. It was held that the liability to pay bonus both under the award and on foot of the agreement was a liability which became legally enforceable against the assessee and that though the liability related to a period anterior to the point of time when the assessee took over the business, when the assessee provided for the bonus payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccident arose until it was either admitted, or, if disputed, until determined by the decision of a competent court. On reference, the Lord President Cooper said: ...the broad working rule which emerges as a guide to the crediting or debiting in a tax computation of subsequently maturing credits or debits is to enquire in which accounting period the right or liability was established and to carry the item into the account in that year. I use the vague word 'established' advisedly, for we are now in the region of proper commercial and accountancy practice rather than of systematic jurisprudence. In the case of credit items, such cases as Newcastle Breweries [1927] 12 Tax Cas. 927 and Issac Holden and Sons [1924] 12 Tax Cas. 768 indicate that, if the title to the sum arose in one accounting period, the fact that the precise amount of the credit was not fixed until later will not prevent the eventual receipt being credited in the earlier year. So too in the case of expenses, as is illustrated by Ford [1926] 12 Tax Cas. 997 and Bernhard [1928] 13 Tax Cas. 723... The Supreme Court had to deal with the proper debit of an item of expenditure under the mercantile system of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to suggest that the sum could be deducted only from the profits of the succeeding account year. We are unable to accept this argument. That the award fastened a legal liability upon the assessee even on the date of its publication is beyond question. In terms the award directed the payment of certain sum by way of bonus. What section 17A contemplates is only that in the case of an award, the employer is given a time of one month to comply with the terms of that award, failing which it becomes enforceable by proper proceedings against him. But that does not detract from the fact that the award created a legal liability on the assessee even by the date of its publication. It follows therefore that in so far as the amount which became payable under the award is concerned, it was properly debitable in the year of account. The other part of the amount which was in effect a voluntary payment on the part of the assessee stands on a different footing. That payment related to the bonus which might have been claimed in respect of the calendar year 1950. No claim had actually been made by the workers. But, on the advice of the Southern India Mill Owners' Association, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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