Law: Income Tax Act, 1961

Section: 36,36(1)(ii),(2),37

Income-tax----Business expenditure---Business loss---Bad debt ---Bonus----Assessee paying recoverable bonus under agreement in 1971 with employees---By Board resolution in 1973 assessee deciding not to recover such amount--¬No evidence that sum paid to employees was loan---And that loan was written off---Deduction not allowable as business loss or as expenditure in assessment year 1974-75---Indian Income Tax Act, 1961, Ss. 36(1)(ii), (2) & 37. Under an agreement dated October 6, 1971, entered into between the assessee-company and its employees in the presence of the Commissioner of Labour, the assessee agreed to pay its workmen recoverable bonus equivalent to one months basic salary and dearness allowance. Accordingly, a sum of Rs.15,216 was disbursed in the year 1971. However, the Board of Directors of the assessee-company, by, a resolution dated November 16, 1973, decided not to recover this amount from the employees and to adjust the amounts against the bonus paid account in the accounts for the current financial year. The assessee claimed deduction of the sum in question in its assessment for the assessment year 1974-75. The Tribunal held that what was paid by the assessee to its employees was a loan, which should be considered as business expenditure under section 37 of the Income Tax Act, 1961, and that the adjustment to the bonus paid account was only for accounting purposes. On a reference: Held, that there was no material on record to support the view taken by the Tribunal. As against the statement made in the resolution passed by the Board of Directors, no evidence was produced to show that what was paid to the employees was a loan and that it was written off. The Tribunal was not correct in holding that what was paid to the employees was a loan and not bonus. The sum in question was not an admissible deduction as business loss or under section 37 of the Act. JUDGMENT K. A. THANIKKACHALAM, J. [9-1-1996].---At the instance of the Department, the Tribunal referred the following question for the opinion of this Court under section 256(1) of the Income Tax Act, 1961: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal…

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