Law: Income Tax Act, 1961

Section: 37,37(2A)

(a) Income-tax----Business expenditure ----Accounting -----Bonus ---Mercantile system of accounting ---Amount paid as bonus in addition to that provided in accounts in pursuance of settlement with workers ---Amount paid was deductible--­Indian Income Tax Act, 1961, S.37---Indian Payment of Bonus Act, 1965. (b) Income-tax--- ----Business expenditure ---Disallowance of expenditure ---Entertainment expenditure ---Law applicable -----Amount spent on provision of food and drink to customers ----Finding that expenditure was incurred by way of hospitality and not by way of entertainment---Expenditure deductible in assessment years 1972-73 and 1973-74---Indian Income Tax Act, 1961, S.37. Section 19 of the Payment of Bonus Act, 1965, sets a time-limit for payment of bonus and provides that the bonus payable shall be paid in cash by the employer within eight months from the close of the accounting years, where there is no dispute and where there is a dispute pending before any authority under section 22 of the Payment of Bonus Act, within one month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute. Therefore, there can be no doubt whatsoever that the assessee/employer .who is subject to the Payment of Bonus Act, is under statutory duty to pay bonus to his employees and in cases where there is no dispute pending under section 22 before any authority, such payment must be effected within eight months from the date of closing of the accounting year. The assessee, who follows the mercantile system of accounting, therefore, must necessarily provide for the payment of bonus to his employees and it is only the quantification that is postponed: Held, that, in the instant case, according to the employer/assessee, it had been the habit of the employer in the past to offer to pay bonus at a lower rate while the employees trade a claim for payment at a higher rate and the actual rate at which the payment was to be made was worked out in a settlement. The settlement, therefore, could not be regarded as one which was contrary to any of the provisions of the Act, or as an instrument by which a statutory liability was…

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