Law: Income Tax Act, 1922

Section: 66(1),10(2)(x)

Income-tax Act, 1922 -Section 10(2)(x) -- Bonus --- reasonableness --- Company declaring loss -Trading results excluding depreciation showing profits -Existence of profits, whether a precondition before bonus can be allowed as deductible expenditure -Held no -Reasonableness of bonus -Whether three conditions mentioned in clause (x) should be considered cumulatively and not by reference to any one of them -Held yes -Test of commercial expendiency -Whether strictly germane to the consideration of reasonableness -Held yes -"Profits", meaning of - Interpretation -Determining reasonableness of bonus, three considerations laid down in proviso to cl.(x) of section 10(2) are to be considered cumulatively and not by reference to only one of them -Existence of profit is not only factor to be considered in coming to conclusion whether or not bonus paid was deductible item of expenditure -Test of commercial expediency germane to consideration of reasonableness of deduction claimed for amount paid -Profit under section 10(2) determined after deducting all legitimate items of which bonus is one -Assessee entitled to pay bonus and claim it as a deduction for the purpose of calculating "profits and gains" -- JUDGMENT FAKHRUDDIN G. EBRAHIM, J.---On an application made under section 66(1) of the Income-tax Act, 1922 by the Commissioner of Income-tax ral, Karachi, the Income-tax Appellate Tribunal, Karachi Bench, Karachi has made this reference to this Court of the following question of law said to arise from the Tribunal's Order dated 3rd February, 1953 in I.T.A.751/65-66 in respect of the charge year 1959-60:-- "Whether in the facts and circumstances of the case the Tribunal was justified in holding that the bonus paid to the employees was reasonable with reference to the profits of the business for the years in question within the meaning of para. (b) of the proviso to clause (x) of sub-section (2) of section (2) of Section 10 of the Income-tax Act, 1922." 2. The facts forming the background to this question are as follows. The respondent is a public limited company which dervie come from manufacture and sale of yearn. For the year under consideration, apart from other…

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