Law:

Section:

Section 10(2)(x), read with section 10(5) of the Indian Income-tax Act, 1922 [corresponding to section 36(1)(iii) of the Income-tax Act, 1961] - Bonus/Commission - Year in which allowable - Assessment year 1961-62 - For assessment year 1961-62, corresponding to accounting year ended on 19-9-1960, following a dispute by assessee's workers demanding bonus and issue of a notification by Government dated 23-12-1960, assessee made a provision for bonus - During relevant accounting year there was no statutory liability as Bonus Act was not in force at that time - Whether liability of bonus having been created after close of accounting year of assessee on issue of Government notification dated 23-12-1960, same was inadmissible in assessment year 1961-62 - Held, yes - Whether merely because assessee had made provision for meeting such contingent liability, it was entitled to deduction of same - Held, no FACTS For the assessment year concerned 1961-62, the relevant accounting year being the year ending on 19-9-1960, the workers of the assessee raised a dispute demanding bonus. The dispute was referred on 7-9-1960 to a Committee formed by the Government. On the basis of its recommendations the Government issued a notification on 23-12-1960 declaring that the workers were entitled to bonus. The notification which was issued after the close of the relevant accounting year of the assessee created the liability to pay bonus. During the assessment year 1961-62, the assessee made a provision of certain amount towards bonus and claimed deduction of the said amount in its assessment proceedings. Its claim was disallowed. On appeal to the Supreme Court: HELD The assessment year concerned was one prior to the coming into force of the Bonus Act. Therefore, there was no existing liability upon the assessee to pay bonus during the relevant assessment year. In other words, during the relevant assessment year, the liability to pay bonus had not fastened on the assessee. The liability itself was created subsequent to the closing of the assessment year. In such a situation, merely because the assessee made a provision for meeting such a contingent liability, it was not entitled to…

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