BANERJEE, J. - (1.) THIS is a reference under s. 27(1) of the WT Act, 1957, made in circumstances hereinafter stated. The assessee is a public limited company, doing business in manufacture of textile machinery. The assessment years in question are 1957-58, 1958-59 and 1959-60, the material valuation dates being 31st Dec., 1956, 31st Dec., 1957, and 31st Dec., 1958. There is no dispute that the accounts of the business, carried on by the assessee, are regularly maintained on mercantile basis.
(2.) AS is now the common feature with most of the manufacturing concerns, the employees of the assessee-company were carrying on an industrial dispute with the assessee, concerning payment of bonus. This dispute is not of recent origin. In the year 1955, the employees made a claim for bonus and carried the matter before an Industrial Tribunal, which made an award of Rs. 5,65,000 in favour of the employees. This award was implemented in the year 1956. For similar claims concerning the years 1956, 1957 and 1958, there were disputes pending before Industrial Tribunals but as late as the year 1961, the Tribunals did not make any award. Be that as it may, the assessee seems to have learnt a lesson from the award made in respect of the claim for bonus for the year 1955 and made provision for Rs. 6,00,000 in the year 1956, Rs. 12,00,000 in the year 1957 and Rs. 16,93,000 in the year 1958, for bonuses likely to become payable to the workmen in the respective years. Not only was such provision made, but the assessee made advances to the workmen during the years 1956, 1957 and 1958 against bonuses, that might become payable to them in future, the amounts advanced being Rs. 1,76,414 as on 31st Dec., 1956, Rs. 5,93,824 as on 31st Dec., 1957 and Rs. 11,75,468 as on 31st Dec., 1958. The amounts, which the assessee had provided for bonuses, were included in the accounts under the head "Sundry provision", in the section for current liabilities, and were shown in the balance sheets. The amounts, which were advanced out of the bonus fund, were included under the item "loans and advances" in the balance sheets. Further, the assessee made provisions for income-tax liability, in respect of assessments which were not completed up to the respective valuation dates. The provision for taxation amounted to Rs. 31,00,000 as on 31st Dec., 1956, Rs. 60,15,000 as on 31st Dec., 1957, and Rs. 99,65,743 as on 31st Dec., 1958. Also, the assessee showed, amongst its assets, loans and advances amounting to Rs. 70,37,932, Rs. 76,50,605 and Rs. 1,06,77,932, as on 31st Dec., 1956, 31st Dec., 1957, and 31st Dec., 1958, respectively; these amounts included the sums of Rs. 24,44,998, Rs. 27,50,969 and Rs. 45,17,133, being the amounts of debt outstanding for more than three months and were separately shown in Schedule G of the respective balance sheets. The assessee-company anticipated short recoveries in respect of some of these debts and against such short recoveries made specific provisions, amounting in all to Rs. 1,38,406, Rs. 1,32,512 and Rs. 1,14,866, respectively, for the three assessment years. Lastly, although the assessee had not made any provision in respect of its liability for sales-tax, in the balance sheets, as on respective valuation dates, the amounts of outstanding sales-tax demand under appeal were shown in a foot-note. On 31st Dec., 1957, which was the valuation date for the asst. yr. 1958-59, such liability for sales-tax for the years 1953 and 1954 was said to be Rs. 3,13,000. Out of this sales-tax for the year 1954 was determined at Rs. 2,16,475 but the demand notice in respect thereof was issued on 3rd Jan., 1958, and was served on the assessee after two or three days, that is to say, a few days after the end of the relevant valuation date.
(3.) THE book value of the assessee's fixed assets were Rs. 1,56,17,729 as on 31st Dec., 1956, Rs. 2,08,38,494 as on 31st Dec., 1957, and Rs. 2,18,41,602 as on 31st Dec., 1958. THEse figures are not in dispute and details thereof are to be found from the balance sheets. THE written down value of these assets for the purpose of s. 10(2)(vi) of the IT Act, as per income-tax records of the assessee, were Rs. 1,26,95,835, Rs. 1,76,26,976 and Rs. 1,87,52,878, respectively. THE written down value of the assets as per income-tax records of the assessee took into account not only the normal depreciation allowance allowed under s. 10(2)(vi) but also additional depreciation allowance under s. 10(2)(via). The deductions claimed by the assessee, in all the three assessment years, were four-fold, firstly, on account of bonus payable to the employees, secondly, for income-tax payable in respect of profits earned before the valuation dates, thirdly, for bad and doubtful debts in respect of which provisions had been made in the accounts and, fourthly, for sales-tax liability for the asst. yr. 1958-59, which liability had not been provided for in the books.;