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TMI Blog1990 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... rt by the assessee under the provisions of section 15 of the Payment of 'Bonus Act, 1965 (hereinafter referred to as "the Bonus Act"). This sum was not actually paid to the workmen, but had to be set apart by virtue of the aforesaid provision and the assessee claimed the sum to be a deductible item under section 37 of the Act. This claim was also disallowed. The order of the Income-tax Officer was upheld throughout. Hence, the first question. The second question need not detain us any longer because the same is covered by the decision of this court in CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 936. It was held therein that surtax levied is nothing but an additional tax on the profits and gains of business and essentially the surtax remains a charge on the profits and gains of the business of companies. Therefore, it was held that an assessee is not entitled to claim deduction of surtax payable by it in computing the total income. Following the aforesaid decision, the second question referred to us has to be answered in favour of the Revenue and against the assessee and in the affirmative. On the first question, it was contended by Sri Sarangan, learned counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total salary or wage of the employees employed in the establishment in that accounting year, be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilised for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule. (2) Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under section 10, and there is no amount or sufficient amount carried forward and set on under sub-section (1) which could be utilised for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year in the manner illustrated in the Fourth Schedule. (3) The principle of set-on and set-off as illustrated in the Fourth Schedule shall apply to all other cases not covered by sub-section (1) or sub-section (2) for the purpose of payment of bonus under this Act. (4) Where in, any ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make repeated and periodic payments in the future, it may generally be regarded as a payment of a revenue character ; and (v) if the ownership of the money whether in point of fact or by a resulting trust be still in the taxpayer, then there is acquisition of a capital asset and not an expenditure of a revenue character." The Supreme Court also pointed out that law does not allow as expenses all the deductions a prudent trader would make in computing his profits. The money may be expended on grounds of commercial expediency but not of necessity. The Supreme Court proceeded to state further that (at page 76) : "The test of necessity is whether the intention was to earn trading receipts or to avoid future recurring payments of a revenue character. Expenditure in this sense is equal to disbursement which, to use a homely phrase, means something which comes out of the trader's pocket. Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income-tax laws do not take every such allowance as legitimate for pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular amount to meet a possible liability in the future by itself cannot make it an expenditure. The money is not lost to the assessee. It has not gone irretrievably. If the setting apart of the amount is only to meet a contingency which may arise or may not arise, the assessee cannot be held to have incurred any expenditure. However, Sri Sarangan cited another decision in the same volume in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC). But the said decision is of no assistance to Sri Sarangan because it pertains to the method of accounting and the mode of computing the allowable expenditure under the mercantile system of accounting. The liability was an accrued liability. There was no doubt that it was not a mere contingent liability in the said case. What is the nature of the liability under section 15 of the Bonus Act ? The amount to be set apart under section 15(1) is not to discharge any present liability at all. The very provision is attracted only in case there is an allocable surplus during a particular accounting year. If the said allocable surplus exceeds the payment of the maximum bonus payable under section 11 of the said Act, the excess, subject to a limit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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