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TMI Blog1989 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... determining its total income under the Income-tax Act, 1961, for the assessment year 1968-69 ? 2. Whether, on the facts and in the circumstances of the case, the deduction of Rs. 37,840 being the amount of 'set on' under the Payment of Bonus Act, 1965, as claimed by the assessee-company was a lawful one for the purpose of accurate reflection of the time costs of earning its year's receipts under the Income-tax Act, 1961, for the assessment year 1968-69 ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 37,840 being the amount of 'set on' under the Payment of Bonus Act, 1965, was non-deductible provision only for the purpose of determining the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of appeal before the Appellate Assistant Commissioner. It was contended before him by the assessee that the said amount of Rs. 33,840 being the bonus payable to the employees of the assessee as determined under section 15(1) of the Payment of Bonus Act, 1965, should have been allowed as a deduction for the computation of the total taxable income of the assessee. This argument of the assessee was rejected by the Appellate Assistant Commissioner. Aggrieved by the said order of the Appellate Assistant Commissioner, the assessee brought the matter by way of appeal before the Tribunal. It was contended on behalf of the assessee that the authorities below had not appreciated the scheme of the Payment of Bonus Act, according to which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Appellate Assistant Commissioner of Income-tax who has directed the Income-tax Officer to allow the claim for bonus as computed for the Payment of Bonus Act, 1965, according to the claim of the assessee by observing that the provision of bonus computed as per the Payment of Bonus Act, 1965, was not a contingent liability but was an ascertained liability. Aggrieved by the said order of the Appellate Assistant Commissioner, the Revenue brought the matter by way of appeal before the Tribunal and it, after hearing both sides, directed the Income-tax Officer to take into account only the actual liability of the assessee as explained in the immediately preceding year in computing the total income of the assessee. Before us, cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m bonus of 4% of wages or Rs. 40 and a maximum bonus of 20% in the accounting year. Section 15 does not require the payment of any bonus in this or even in any subsequent assessment year until and unless there is a shortfall. Therefore, the liability determined by the Act is only to the extent of 20% in one accounting year. The provision requiring the assessee to carry forward the excess to the extent of another 20% of the allocable surplus is only in the nature of a guarantee for the payment of minimum bonus in the subsequent accounting years in case there is any shortfall. Section 15 merely provides for a, provision to meet a further liability which may arise on a certain contingency of there being inadequate allocable surplus in the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any provision made to meet the liability of the assessee in the subsequent accounting years cannot be considered to be an expenditure laid out for the purpose of business in computing the profits of this accounting year and cannot, therefore, be allowed to be deducted. Our attention has been drawn to the decision of the Madhya Pradesh High Court in Malwa Vanaspati and Chemical Co. Ltd. v. CIT [1985] 154 ITR 655. There, the court held that "set on" bonus under section 15(1)of the Payment of Bonus Act is not a subsisting liability as such for the accounting year but it is a contingent liability. It is merely a reserve fund which the assessee has to create by reason of the provisions of section 15(1) of the Payment of Bonus Act. The court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 41(1). If so, the said amount, as and when it comes back to the revenues of the assessee, cannot also be treated as its income under sub-section (1) of section 41, which circumstance also show that this amount cannot be allowed as a deduction." It was, therefore, held that the amount set on in pursuance of section 15 of the Payment of Bonus Act is not deductible for income-tax purposes. In our view, having regard to the relevant provisions of the Payment of Bonus Act, we are of the view that the amount of "set on" under the Payment of Bonus Act is a provision for contingent liability not deductible in determining the total income of the assessee under the Income-tax Act for the assessment year under consideration. In the result, the q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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