Case: The Commissioner Of Income-Tax, Madhyapradesh, Nagpur Vs. Swadeshi Cotton And Flour Mills

1. The respondent, Swadeshi Cotton and Flour Mills, hereinafter referred to as the assessee, is a limited company which owns and runs a textile mill at Indore. For the assessment year 1950-51 (accounting year, calendar year 1949), which was its first year of assessment under the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) it claimed that under S. 10(2) (x) of the Act it was entitled to an allowance in respect of the sum of Rs. 1,08,325/- which it had paid as bonus for the year 1947 in the calendar year 1949, as a result of the award of the Industrial Tribunal dated January 13, 1949. The claim of the assessee was not accepted by the Income-tax authorities. The Appellate Tribunal held that it was a liability relating to an earlier year and not the year 1949. However, on an application by the assessee it stated a case and referred two questions. We are concerned only with one which reads thuson the facts and in the circumstances of the case the assessee is entitled to claim a deduction of bonus of Rs. 1,08,325/- relating to the calendar year 1947 in the assessment yearThe High Court of Madhya Pradesh answered the question in the affirmative. The appellant, having failed to get a certificate under S. 66A(2) of the Act, obtained special leave from this Court, and that is how the appeal is before us.3. The facts and circumstances referred to in the question have been set out in the statement of the case. Unfortunately, the facts are meagre, but since the appellant is content to base his case on a few facts, which will be referred to shortly, it is not necessary to call for a further statement of the case.4. The facts in brief, are as follows. The assessee paid as bonus to its employees the sum of Rs. 1,08,325/9/3 for the calendar year 1947 in terms of an award made on January 13, 1949 under the Industrial Disputes Act. This amount was debited by the assessee in its profit and loss account for the year 1948 and the corresponding credit was given to the bonus payable account. The books for 1948 had not been closed till the date of order of the Industrial Tribunal, January 13, 1949. This bonus was in fact paid to the employees in the calendar year 1949, the relevant assessment year being 1950-51.5. The Appellate Assistant Commissioner had further found that "upto 1946 when the order for payment of bonus used to be received before the companys accounts for the year were finalised, the amount of bonus used to be in fact debited to the profit and loss account of the respective year. This finding is repeated by the Appellate Tribunal in its appellate order.

Court's reasoning:
16. It follows from the above decisions of this Court that :-(a) workmen are entitled to make a claim to profit bonus if certain conditions are satisfied;(b) the workmen have to make a claim from year to year;(c) this claim has either to be settled amicably or by industrial adjudication; and(d) if there is a loss or if no claim is made, no bonus will be permissible17. In our opinion, it is only when the claim to profit bonus, if made, is settled amicably or by industrial adjudication that a liability is incurred by the employer, who follows the mercantile system of accounting, within S. 10 (2) (x), read with S. 10 (5) of the Act.18. On the facts of this case, it is clear that it was only in 1949 that the claim to profit bonus was settled by an award of the Industrial Tribunal. Therefore, the only year the liability can be properly attributed to is 1949, and hence we are of the opinion that the High Court was right in answering the question in favour of the assessee.19. The second contention of the learned counsel does not appeal to us. We are of the opinion that this system of reopening accounts does not fit in with the scheme of the Indian Income-tax Act. We have already held in Commissioner of Income-tax, Madras v. A. Gajapathy Naidu, Madras, C. A .No. 617 of 1963 D/ 16-4-1964 : (AIR 1964 SC 1653  ) that as far as receipts are concerned, there can be no reopening of accounts. The same would be the position in respect of expenses. But even in England accounts are not opened in every case.are unable to agree with him. The words for the year in question mean the year in respect of which bonus is paid.In our opinion the answer to the question must depend on the proper interpretation of S. 10(2) (x), read with S. 10(5), of the Act.At first sight the sentence does not read well, but the meaning of the word incurred includes to become liable to.