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TMI Blog1992 (10) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... r it was justified in holding that the liability to bonus was not referable to the year under reference The broad features in the background are that the assessee which is a private limited company in which the public are not substantially interested, carried on the business of purchase and sale of crushed bones. The question was in respect of the disallowance of the bonus in a sum of Rs. 15,178. It was on the one hand claimed by the assessee-company before the Revenue that the deduction of the bonus payment of Rs. 22,656 should be allowed. The Income-tax Officer had, on the other hand, found that the total salary paid to the employees to whom the bonus was to be paid worked out to Rs. 37,390, and that the bonus was paid in excess of 20 per cent. which was not covered by an agreement between the employer and the employees and which was not authorised by the conditions of service. Examining the details, the board of directors of the company had sanctioned the bonus at 50 per cent. of the salary for the accounting year 1973-74 at their meeting held on June 5, 1974. A similar payment was also authorised for the subsequent year at the meeting which was held on June 24, 1975. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bonus amount paid in excess of 20 per cent. was liable to be disallowed as the said expenditure was not incurred wholly and exclusively for the purpose of business. Being aggrieved and dissatisfied with the abovesaid orders of the Appellate Assistant Commissioner dated March 20, 1977, annexure-B, the assessee ad approached the Tribunal in appeal. The Tribunal, after consideration of the relevant factual and legal position, had come to the conclusion that the authorities below were justified in taking the said view. The Tribunal has observed that the amount of bonus was sanctioned at the meeting of the board of directors held on June 5, 1974, while the assessee's previous year had ended on March 31, 1974. In the view of the Tribunal, there was no statutory liability on the part of the assessee to make the payment of the bonus in excess of the limit prescribed under the relevant provision and if the additional liability of bonus was undertaken by the assessee as a gesture of goodwill towards the staff, the real question which required consideration was "What was the point of time when this liability could be said to have arisen ?" In the view of the Tribunal, the said liability h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case had agreed to pay the bonus at a rate higher than the statutory rate, then also crystallised liability had come into existence during the relevant previous year and therefore, the amount so decided to be paid to the members of the staff was required to be deducted. Anyhow, the contention raised by learned counsel, Mr. Shelat, appearing on behalf of the Revenue, is that even if it is accepted that the assessee could have agreed to pay the bonus at a higher rate than the ordinarily prevalent statutory liability, then also, in the instant case, looking to the facts and circumstances, the deduction could not have been allowed in that particular relevant year. According to Mr. Shelat, if the assessee is allowed to show to the taxing authorities that there was an additional liability of bonus on the basis of the acceptance of the obligation to pay the bonus at a higher rate, it would lead to various unforeseeable complications. Mr. Shelat has moreover urged with vehemence that, at any rate, when the liability to pay the bonus at the additional rate was accepted at the board meeting after the end of the year, the said liability could not have been included as a deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which certain elements and incidents of the cash and mercantile systems are combined. It is not in dispute that in the case before us, the assessee had preferred to adopt the mercantile system of accounting. The characteristics of the abovesaid system are rather known and, therefore, a detailed reference to the abovesaid decision on which reliance has been placed by learned counsel for the assessee should not, in our view, detain us any more. Reliance is also placed upon the Supreme Court decision in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53. This decision, while considering the provisions of the Payment of Bonus Act, 1965, along with the provisions of the Companies Act, 1956, and the Income-tax Act, 1961, says thus (headnote) : "Contingent liabilities discounted and valued as necessary, can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into consideration. An estimated liability under a scheme of gratuity, if properly ascertainable and its present value is discounted, is deductible from the gross receipts while preparing the profit and los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if the bonus at higher rate is being sanctioned by the assessee, may it be a firm, proprietary concern, or a limited company, after the end of the year and if the bonus so accepted to be paid at a higher rate is allowed as a deductible expenditure in computing the business income during the relevant year, it would result in unforeseen complications for not only the taxing authorities but for the assessee also. In any case, when such eventuality occurs, the old assessment orders shall have to be reopened or shall have to be revised, leading to various other complications and situations vis-a-vis, other enactments also. Moreover, it should not be overlooked that the bonus which should be deducted must be deducted qua the relevant previous year and that, when the board meeting sanctions the payment of bonus at a higher rate, after the close of that particular year, by no stretch of imagination can it be said that there was an existing liability or a crystallised liability to pay the bonus during the relevant year. Such liability to pay bonus is at a higher rate. In view of this, it appears clear that the view which is being sought to be canvassed by learned counsel, Mr. Mehta, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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