Law:

Section:

Section 37(1) , read with section 36(1)(ii), of the Income-tax Act, 1961 - Business expenditure - Year in which deductible - Assessment years 1962-63 and 1963-64 - Assessee-company, following mercantile system of accounting, made provision for payment of bonus to its employees and shown it under 'liabilities for expenses' under head 'contingency account' and deducted these amounts from income returned for respective years - Workers were not entitled to make claim on basis of entries made in account books of assessee nor could assessee be barred from contending that workers were entitled either to lesser amount than that provided or not at all entitled to bonus - Whether on facts, it could be held that provision made was with reference to definite and ascertained liability and not mere provision for possible contingent liability - Held, no - Whether, therefore, amounts provided for payment of bonus did not represent liability of assessee for years in question and, therefore, were not an allowable deduction - Held, yes FACTS The assessee-company was operating a bus transport and was following the mercantile system of accounting. For the assessment year 1962-63 and 1963-64, the assessee made provision for payment of bonus to its employees. The amounts were shown under 'liabilities for expenses' under the head, 'contingency account' and the assessee deducted these amounts from the income returned for the respective years. The ITO held that these amounts were only provisions and not an ascertained liability and that, therefore, it was not an allowable claim. The AAC agreed with the views of the ITO. But the Tribunal held that the bonus was regularly calculated on the basis of the period of service of the employees, that it was an ascertained and definite sum of money and that the bonus to workmen is a contingent liability of the employer and that this contingent liability becomes an accrued liability when the claim was admitted by the employer. In that view, the Tribunal held that it was an allowable claim of deduction. On reference : HELD Neither before the lower authorities nor before the High Court was it contended by the assessee that, by virtue of adopting a…

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