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TMI Blog1980 (3) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... at a flat rate of 20% to all the employees. Admittedly, an award came to be made by the industrial court in 1962 by which the workers were also entitled to a bonus of three months' salary for 1958-59 and 1959-60 but for 1957-58 an extra payment equal to 1% of salary was also allowed over and above the bonus of three months' salary. In the computation of net wealth of the company, the WTO declined to exclude the provision made for bonus on the ground that the amount due to individual employees was neither determined on the valuation date nor credited to their accounts, and, therefore, the liability could not be said to have arisen in the accounting period. The WTO took the view that the bonus charged to the profit and loss account was only a provision which could not be considered as a debt owed on the valuation dates. In appeal by the company, the AAC, following the decision of the Tribunal in the case of the managing agents of the company, Cement Agencies Ltd., directed that the amounts provided for bonus should be allowed as a deduction holding that the payment of bonus was " an existing obligation as the demands of labour had necessarily to be met if the assessee wants to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts set apart for the payment of bonus were liable to be deducted while computing the net wealth of the assessee. Now, there can hardly be any dispute on principles that if the amount set apart for the payment of bonus by the assessee to its employees is to be left out of consideration for the purpose of computation of its net wealth, it must be shown as " debt owed " as required by the provisions of s. 2(m) and it will be only then that the assessee will be entitled to urge that these amounts should be left out of consideration for computation of its net wealth. The concept of " debt owed " as contemplated by the provisions of s. 2(m) of the W.T. Act has been considered in great detail by the Supreme Court in Kesoram Industries Cotton Mills Ltd. v. CWT [1966] 59 ITR 767, where the question before the Supreme Court was whether any tax payable in respect of the profits of the previous years was a debt owed by the assessee on the relevant valuation dates and was deductible in computing the net wealth of the assessee. While summarising its conclusion, the Supreme Court has observed as follows: (p. 784) " To summarise: A debt is a present obligation to pay as ascertainable su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the employees results only from the award of the industrial court in 1962 and, therefore, during the relevant years the amounts which were set apart by the assessee for payment of bonus could not be said to be " debt owed". Now, it is no doubt true that the Division Bench of the Gujarat High Court in Sayaji Mills' case [1974] 94 ITR 54, has pointed out that prior to the enactment of the Payment of Bonus Act, since there was no statutory liability on the part of the employer to pay bonus to his workmen, the liability to pay bonus would in that case have arisen only if the employer had an available surplus in his hands for such payment and it is only when the industrial adjudication determined that there was an available surplus and decided what part of the available surplus should be made over to the workmen as bonus that the liability to pay bonus would ripen into a debt. While there is no reason to disagree with these observations we must read them as being applicable only to a case where an industrial adjudication became necessary before a claim for bonus made by the employees was accepted by the employer. When the Division Bench of the Gujarat High Court pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus the liability for which is not disputed by him. The Calcutta High Court has taken the view that the quantification of the claim for bonus either amicably or through industrial adjudication by the application of what was then known as the Full Bench formula may come later but that would not make the liability any the less a liability and since it was, therefore, the bounden duty of the employer to provide for the liability, it was a debt owed by the capital to the labour and it should be deemed as such for the purpose of computation of the net wealth of the assessee. The Gujarat High Court has dissented from this view in Sayaji Mills' case [1974] 94 ITR 54. However, for the purposes of the present case it is not necessary to decide whether we should accept the principles laid down by the Calcutta High Court or we should dissent from it for reasons set out in the decision of the Gujarat High Court because, as already pointed out, in the present case, there was no dispute whatsoever between the employer and the employees, at least in so far as the claim for bonus to the extent of the amount set apart by the assessee was concerned. When the Calcutta High Court in Textile Machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X
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