1. The question referred to us on this reference is a very short one and it is capable of an easy answer. The question is : 'Whether having regard to the provisions of section 10(2) read with section 10(5) of the Income-tax Act, the assessee company is entitled to a deduction of Rs. 1,80,000 on account of bonus for the year 1951 in computing the business profits for the assessment year 1952-53 ?'
2. Now, the assessee is the Nagri Mills Co. Ltd., Ahmedabad, and the accounting year corresponding to the assessment year 1952-53 is the calendar year 1951. There was a dispute in regard to the bonus payable to the workers for the year 1951 and the matter was referred to conciliation. The conciliation board gave its award in June, 1952, and a bonus was actually distributed in December, 1952. The assessee company maintains its accounts on a mercantile basis and no entry was made in the account books of the company for the year 1951 making a provision for payment of bonus. However, in their return, the company claimed to deduct from the profits the bonus directed to be paid by the conciliation board by its award as an allowable expense which had not been charged in arriving at the figure of profits. The contention of the Department is that this amount, which was Rs. 1,80,000, not having been paid in the accounting year 1951, nor debited in the accounts kept on the mercantile basis, was not a deduction for the assessment year 1952-53.
3. We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.
4. The point raised for determination turns on the words used in section 10, sub-section (2), clause (x), which allows a deduction in respect of bonus and section 10(5). Now, in section 10(2)(x), what is allowable as a deduction is 'any sum paid to an employee as bonus'. By itself this contemplates actual payment; but section 10(5) defines the word 'paid' which appears in sub-section (2) as meaning 'actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under this section'. Therefore, an actual payment is not necessary for the purpose of this deduction; it is sufficient if the liability to bonus is incurred according to the method of accounting upon the basis of which the profits or gains are computed. Now, considering that the profits or gains are computed on the mercantile basis, the amount of bonus for the year 1951 would properly be treated under the mercantile system as an expense for the year 1951. It appears to us to be a matter of little consequence that in point of fact no entry was made in the account of that year making a provision for the bonus, because obviously such an entry could only be made after the conclusion of that year when the profits of that year were known, and, therefore, the liability for a bonus, and it could have been made at any time. The absence of an entry, therefore, does not appear to us to affect the question of whether the assessee was entitled to a deduction in respect of this amount of Rs. 1,80,000. The position appears to us to be made clearer when one turns to the prescribed form of return in Part IV whereof an assessee is to give particulars of income from a business, profession or vocation. The particulars consist, in the first instance, of profit or loss as per profit and loss account; then there are several items which have to be added to the figure of profits or deducted from the figure of loss; and then follow several items which are to be deducted from the profits or added to the figure of losses. Amongst the items which are to be deducted, the last item is 'any other allowable expense which has not been charged in arriving at the above figure of profits'. It is under this head that the assessee claimed Rs. 1,80,000 as the return in this case was made after the conciliation board had fixed the amount of bonus. Obviously, this amount of Rs. 1,80,000 is an allowable expense. Obviously, again, it has not been charged in arriving at the figure of profits according to the profit and loss account. Therefore, it was an amount that could legitimately be shown as a deduction under this part of the statutory form of return, and the assessee were, in our opinion, entitled to have this deduction or allowance. There is no dispute, and there can be none, as to the reasonableness of the quantum which might have been material if there had been no conciliation and an award in regard to the bonus. The only dispute relates to the year in which the amount should be allowed. In our opinion, the amount was rightly allowable in the assessment year 1952-53 and the Tribunal came to the correct conclusion.
5. Our answer to the issue is in the affirmative.
6. Income-tax Commissioner to pay costs.
7. Question answered in the affirmative.