Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which allowable - For assessment year 1971-72, assessee had made a provision for bonus - However , after end of relevant previous year, under a settlement with employees' union, assessee became liable to pay an additional sum as bonus for 1971-72 - Whether liability to pay bonus accrued in previous year relevant to assessment year 1971-72 in view of Payment of Bonus Act, 1935, even though quantified subsequently and was, therefore, allowable in said assessment year in addition to original provision made by assessee - Held, yes FACTS In the assessment year 1971-72, the assessee made provision for payment of bonus in its account books. The employees' union raised a dispute which was, however, settled on 15-10-1971 whereunder an additional sum was also payable towards bonus. The assessee claimed that additional sum as a deductible allowance. The ITO confined the allowance to the original amount for which the assessee had made provision in its account books and repelled the additional liability on the ground that it was incurred after the expiry of the previous year. The AAC upheld the ITO's order. The Tribunal held that the additional liability related to the assessment year 1971-72 though it was quantified later and, hence, was a deductible allowance along with the original amount. On reference: HELD The amount of additional bonus related to the assessment year 1971-72, that was after the enforcement of Payment of Bonus Act, 1965. The Tribunal had rightly found that the liability to pay bonus for the year 1971-72 was a statutory liability under the aforesaid Act. The liability having accrued in the year in question, its quantification subsequent to the expiry of the previous year, will nonetheless be allowable deduction for the year in question. Under the Payment of Bonus Act the assessee was under statutory liability to pay bonus for each accounting year. In other words, the provisions of the Payment of Bonus Act imply that the amount of bonus quantified as payable for a particular year, would be deemed to be the liability to pay bonus for that particular year, and so will be a part of…

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