- (1.) UNDER S. 256(2) of the INCOME TAX ACT, 1961, the Tribunal, Allahabad Bench, Allahabad, has submitted the statement of the case with the following question of law for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,01,539 provided as bonus relating to the profits of the asst. year 1961 -62 was an allowable deduction under S. 10(2)(x) of the Indian IT Act, 1922 ?"
(2.) THE assessee is a private limited company and runs a sugar mill at Deoria. The assessment year involved is 1961 -62 with the previous year ending on 19th September, 1960. The assessee made a provision of a sum of Rs. 1,01,539 for payment of bonus to its workers in respect of the profits of the relevant previous year and claimed the sum as deduction in the computation of its net profits liable to tax. The ITO disallowed the claim of the assessee on the ground that the liability for bonus was determined under the orders of the Government dt. 29th Dec., 1960, and so on 29th Sept., 1960, when the accounts were closed there was no ascertained liability against the assessee for payment of bonus. He relied upon a decision of the Supreme Court in the case of CIT vs. Swadeshi Cotton & Flour Mills (P) Ltd. (1964) 53 ITR 134 (SC). Before the AAC the assessee tried to distinguish the decision of the Supreme Court in the case of Swadeshi Cotton & Flour Mills (P) Ltd. (supra) and argued that, under the Bonus Act, bonus is payable to the workers with reference to the profit earned in particular season and each year the labour department of the Government sets up a committee for ascertainment of bonus payable to the workmen by each sugar factory in the State. For the ascertainment of bonus payable for the year under consideration a committee was set up on 7th Sept., 1960, i.e, before the close of the accounting year. The committee submitted its report to the Government and the U. P. Government issued a notification after the close of the accounting year on 23rd Dec., 1960. It was argued that under similar circumstances a notification was issued by the State Government after the close of the previous year in respect of the asst. yr. 1959 -60 and the assessee -company had made a provision for the payment of bonus at the end of the previous year and the assessee's claim had been allowed. The assessee had followed a similar practice in the assessment year in question and hence it was entitled to deduction The AAC accepted the assessee's contention on the view that since the assessee had been following a similar practice in the past the claim of the assessee should be allowed in respect of the assessment year in question also. Against that order the Department went up in appeal before the Tribunal. The Tribunal allowed the Department's appeal and set aside the order of the AAC holding that at the end of the previous year there did not exist any legal liability against the assessee for the payment of bonus and the liability arose only on 23rd December, 1960, when the Government issued a notification under the Industrial Disputes Act, saddling the assessee with the liability for payment of bonus. The assessee is aggrieved and at this instance this reference has been made. The assessee, no doubt, follows the mercantile system of accounting. So that every liability incurred by it during the relevant previous year could be claimed as a deduction. But even in a case where mercantile system is followed the liability must be an enforceable liability ascertained or capable of being ascertained. We might make it clear here that the Bonus Act was not in force at the relevant time. The liability of the assessee to pay bonus arose because of the notification issued by the State Government under the Industrial Disputes Act. It appears that the workers of the sugar industry claimed bonus for the season ending on 29th Sept., 1960, and as the claim was not accepted by the sugar mills including the assessee -company, a tripartite conference was held and a committee was formed to go into the question. This committee was no doubt formed on 7th Sept., 1960, before the assessee closed its accounts but the notification was issued by the State Government after the accounts had been closed. The liability of the assessee to pay bonus, therefore arose when the State Government issued the notification. Before that date there was no liability upon the assessee to make payment of bonus. Under S. 10(2)(x) of the Indian IT Act, 1922, any sum paid to an employee as bonus or commission for services rendered is to be allowed as a deduction. Now, the word "paid" in this clause means actually paid or incurred according to the method of accounting upon the basis of which the profits and gains are computed under this section. This has been provided in S. 10(5) of the Act. In the instant case the bonus was admittedly paid after the close of the previous year but the liability for payment had also arisen after the close of the previous year when the Government issued the notification in December, 1960. A similar question arose before the Supreme Court in CIT vs. Swadeshi Cotton and Flour Mills (P.) Ltd. (supra). There the assessee -mill made a provision for payment of bonus relating to the profits of the year 1947. The provision was made in the year 1948 but the award under the Industrial Disputes Act was given in 1949. The Supreme Court held that the liability of the company to pay bonus to its workers arose in the year 1949 when the award was made by the Industrial Tribunal. It was not allowable in the year 1947 merely because the bonus related to the profits of that year. In that case also the Bonus Act was not applicable and the workmen had to make a claim for bonus every year and the company became liable for payment of bonus only if the claim was settled amicably or by adjudication. The facts of this case are on all fours with the facts of the instant case. Here also the bonus was not payable under the bonus Act but became payable as a result of the notification issued by the Government under the Industrial Disputes Act. The notification was issued on 23rd Dec., 1960, long after the previous year relevant to the asst. year 1961 -62 had expired. The claim was, therefore, not admissible in the assessment proceedings for the asst. yr. 1961 -62. The claim will be admissible in the succeeding assessment year.
(3.) FOLLOWING the decision of the Supreme Court in the case of Swadeshi Cotton Flour Mills (P) Ltd. (supra) this Court has taken a similar view in New Victoria Mills Co. Ltd vs. CIT (1966) 61 ITR 395 (All). In a recent case, Nonsuch Tea Estate Ltd. vs. CIT (1975) 98 ITR 189 (SC), the Supreme Court has held that where the remuneration paid to the managing agent became payable only after the approval of the Government, under S. 326 of the Companies Act, 1956, the claim to deduct the commission is admissible only in the previous year in which the approval is granted by the Government and not earlier.;