Law:

Section:

Section 36(1)(ii) of the income-tax act, 1961-Bonus-Assessee-Firm maintained its account on mercantile system and provided for bonus of Rs. 26,918 in accounting year ended on 31-3-1972-For assessment year 1972-73, assessee claimed a deduction of Rs. 40,610 under section 36(1)(ii ) representing liability under the payment of bonus act-ITO disallowed Rs. 13,692 as it was neither provided for nor paid in accounting year-Tribunal upheld ITO's action-Whether tribunal justified in law in disallowing impugned deduction-Held, on facts, no Facts The assessee-firm adopted the mercantile system of accounting. In the accounting year ended on 31-3-1972, relevant for assessment year 1972-73, the assessee made a provision of Rs. 26,918 for bonus to cover the liability brought forward of the erstwhile HUF, which carried on the business till the assessment year 1971-72. For the said assessment year 1972-73, the assessee claimed under section 36(1)(ii ) a deduction of Rs. 40,610 representing its liability under the Payment of Bonus Act. The ITO, however, allowed a deduction of Rs. 26,918, holding that the assessee had provided only for that amount in its account books. On appeal, the AAC directed the ITO to allow the assessee a further deduction of Rs. 13,692. On appeal by the revenue, the Tribunal sustained the deduction allowed by the ITO. It, however, observed that this amount of Rs. 13,692 should be allowed as a deduction in the year in which the assessee made provision for it or paid it. On reference, the revenue contended (i) that the sum of Rs. 13,692 should not be allowed as a business deduction in the assessment year 1972-73; and (ii) that the sum of Rs. 40,610 represented the allocable surplus and not the liability created under section 11 of the Payment of Bonus Act and the matter should be sent back for an inquiry as to whether the said amount was, in fact, the amount of bonus payable under section 11 of that Act. Held 1. A statutory liability was cast on the employer under sections 10 and 11 of the Payment of Bonus Act to pay bonus to its employees during the accounting year. An assessee, following the mercantile system of accounting, was entitled to a deduction of…

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