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TMI Blog1978 (1) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Officer. There was a further appeal by the assessee to the Income-tax Appellate Tribunal. The Tribunal did not agree with the view taken by the Appellate Assistant Commissioner and disposed of the matter with the following observation : "In our opinion, the Appellate Assistant Commissioner was not correct. The matter relates to the bonus for the current year. The same is an existing liability and has to be allowed as such. The facts of the instant case are distinguishable from the facts of the case before the Supreme Court relied upon by the Appellate Assistant Commissioner. The claim of the assessee would thus be allowed in this regard. The disallowance of Rs. 37,835 will be deleted." From this order of the Tribunal the following question has been referred : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 37,835 included as provision in the accounts for 31st October, 1960, as bonus to its staff and labour for the year 1960 was deductible in computing its profits for the assessment year 1961-62 as a liability? " Mr. Bagchi, learned advocate appearing for the revenue, has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be settled amicably or by industrial adjudication ; and (d) if there is a loss or if no claim is made, no bonus would be permissible. On the basis of the above, the Supreme Court held on the facts that it was only in 1949 that the claim to profit bonus was settled by an award of the Tribunal and that would be the only year in which the liability could properly be attributed to. Mr. Bagchi also cited other decisions which are chronologically as follows : (a) New Victoria Mills Co. Ltd. v. Commissioner of Income-tax [1966] 61 ITR 395 (All). In this case, the Allahabad High Court followed Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134 (SC), and added that, in the mercantile system of accounting, for making a credit or debit entry, it had to be shown that a certain enforceable liability has accrued or arisen. Such liability must be one that has been ascertained and capable of being enforced by the person in whose favour the debit has been raised. (b) Commissioner of Income-tax v. Somasundaram Mills (P.) Ltd. [1974] 95 ITR 365 (Mad.) Hence, the assessee who followed the mercantile system of accounting claimed a deduction of a sum of Rs. 1,98,993 in the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd following actuarial principles, there was no reason why it should not be taken into account in arriving at true profits and gains under the Income-tax Act. Mr. Pal next cited a decision of this court in the case of Textile Machinery Corporation Ltd. v. Commissioner of Wealth-tax [1968] 67 ITR 122 (Cal). In this case, a question similar to that in the present reference, arose in a wealth-tax proceeding. In the assessment years in question the assessee had made provision for payment of bonus and further made advances to the workmen on the basis thereof against anticipated demand. The question arose whether, on these facts, in determining the net value of the assets of the assessee's business, provision made for bonus should be deducted. The decision of the Supreme Court in the case of Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134 (SC) was cited and this court distinguished the decision of the Supreme Court with the following observations ([1968] 67 ITR 122, 137 (Cal) : "We live in a welfare State where we have certain responsibilities One such responsibility is that employers should not only pay wages and allowances to workmen, but must share with them a portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts kept under the mercantile system. The High Court held that, as the assessee was maintaining its accounts under the mercantile system, it incurred liability when it passed its resolution for payment of bonus and was entitled to the deduction of the same. Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134 (SC) was distinguished on facts that there the claim had been made by employees, which was disputed and the matter was pending adjudication and that there was no such dispute in the case before the High Court. The payment was voluntary and the High Court assumed that the employees must have made a claim, which the management must have accepted or, alternatively, there was a subsisting understanding as to the payment of bonus. On these grounds the claim for deduction was upheld. In reply, Mr. Bagchi cited the case of Commissioner of Wealth-tax v. Sayaji Mills Ltd. [1974] 94 ITR 54 (Guj). In this case, the identical question as in the case of Textile Machinery Corporation Ltd. [1968] 67 ITR 122 (Cal) arose before the Gujarat High Court. The Gujarat High Court dissented from the Calcutta High Court and held that the liability to pay bonus was not a liability for any liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X
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