Sudhindra Mohan Guha, J. - (1.) This is a reference under Section 66(2) of the Indian I.T, Act, 1922, and the question referred was as follows : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the "incenctive bonus" provided during the year was not a proper liability and could not be deducted in arriving at the commercial profits for the purpose of considering the applicability or otherwise of the provisions of Section 23A of the Indian Income-tax Act, 1922 ?"
(2.) The assessment years involved are 1956-57, 1957-58 and 1961-62 and the relevant accounting years are the financial years ending on March 31, 1956, March 31, 1957, and March 31, 1961, respectively.
(3.) The assessee is a private limited company and manufactures razor blades known as "Bharat". In order to act as an inducement for distributors or sellers to effect larger sales of the blades manufactured by the assessee, the assessee devised a scheme of giving bonus to such distributors and sellers. The bonus given will hereinafter be referred to as "incentive bonus". The exact terms on which the assessee had agreed to pay the incentive bonus to its distributors or sellers were not made available to the authorities below. It was, however, stated that in order to be eligible for receipt of the incentive bonus the distributors should have placed more than one order in a particular year. The incentive bonus was given in the form of rebate from the sale price payable by the distributors or by credit notes. In the accounting years relevant to the assessment years 1956-57, 1957-58 and 1961-6 2, the assessee had shown in its books of account incentive bonus payable at Rs. 2,26,687-50, Rs. 4,21,181.31 and Rs. 9,95,321.62, respectively.;