Law: Income Tax Act, 1961

Section: 256(1)

Income-tax--- ----Business expenditure---Remuneration to employees ---Assessee acquiring business of another company under a scheme of amalgamation---Statutory liability to pay bonus to employees for prior years---Deductible. The assessee, a limited company, was following the mercantile system of accounting. Under the terms of a scheme of amalgamation sanctioned by the High Court, the Indian undertaking of M, a sterling company, was acquired by the assessee as a going concern with all its assets and liabilities as at the close of the business on December 31, 1977. The assessee made provision for bonus at Rs. 15,40,720. The provision was made for assessment year 1978-79. The assessee made payment of bonus at Rs.18,08,911. The said payment exceeded the provision by Rs. 2,68,191. The excess payment was disallowed by the Income-tax Officer on the ground that it related to the earlier years. The Commissioner of Income-tax (Appeals) and the Tribunal, however, allowed it. On a reference: Held, that the liability to pay bonus fell on the Indian company after all the assets and liabilities of the sterling company were transferred to, and vested in, the Indian company. The bonus was also paid to the staff taken over by the Indian undertaking of the sterling company. The assessee was entitled to the deduction for the bonus which was also statutorily payable by the assessee in respect of the employees taken over from the Indian undertaking of the sterling company. Kedarnath Jute Manufacturing Co. Ltd. v. C.I.T (1971) 82 ITR 363 (SC) and Shalimar Chemical Works Pvt. Ltd. v. C.I.T (1987) 167 ITR 13 (Cal.) ref. JUDGMENT AJIT K. SENGUPTA, J: --This reference under section 256(1) of the Income-tax Act, 1961, relates to the assessment year 1979-80. Shortly stated, the facts are that the assessee, a limited company, was following the mercantile system of accounting. Under the terms of a scheme of amalgamation sanctioned by the Calcutta High Court, the Indian undertaking of Moran Tea Co. Ltd. a sterling company was acquired by the present assessee as a going concern with all its assets and liabilities as at the close of the business on December 31, 1977. The assessee made…

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