K.K. Desai, J.
1. In connection with the computation of its income for the accounting year 1949, the assessment year being 1950-51, the respondent-assessee mills company claimed deduction of the respective amounts of Rs. 4,16,604 and Rs. 1,79,246. The Income-tax Appellate Tribunal accepted the company's case in respect of the sum of Rs. 41,6,604, but rejected the company's case in respect of the sum of Rs. 1,75,246. In this reference, the questions Nos. 1 and 3 relating to these two accounts are as follows :
'(1) Whether, in the computation of the assessee's business income of the accounting year 1949, its claim for deduction under section 10(2)(xv) of the Act of the sum of Rs. 4,16,604 being bonus relating to the accounting year 1948 can be properly allowed
(3) Whether in computing the business profits of the year 1949, the assessee was entitled to get deduction of the sum of Rs. 1,75,246, being the amount of leave wages ascertained in accordance with the provisions of sections 79 and 80 of the Factories Act, 1948 ?'
2. The first question is raised at the instance of the Commissioner of Income-tax and the third question at the instance of the assessee-company.
3. The facts which require to be noticed in connection with these questions are as follows :
The assessee-company carries on business of a textile mills at Indore. It maintains its books of account according to the mercantile system. In connection with the claim for bonus for the year 1948 raised in April, 1949, the industrial court made an award dated November 5, 1949, directing the payment of aggregate sum of Rs. 4,16,604, as bonus to the employees of the mills company. Under the subsequent order dated December 3, 1949, the first moiety of Rs. 2,08,302 was directed to be paid on or before December 25, 1949, and the second moiety on or before January 25, 1950. The Appellate Tribunal allowed the claim for deduction of this amount following the decision of the High Court of Madhya Pradesh in the case of Swadeshi Cotton and Flour Mills Pvt. Ltd. v. Commissioner of Income-tax (unreported). The Appellate Tribunal did not follow the decision of this court in the case of Commissioner of Income-tax v. Nagri Mills Co. Ltd. The grievance of the Commissioner was that the Tribunal should have followed the decision of this High Court in the above case and rejected the claim for allowance and deduction in respect of this amount.
4. Now, Mr. Joshi for the revenue has fairly drawn our attention to the decision of the Supreme Court from the above referred decision of the Madhya Pradesh High Court in the matter of Commissioner of income-tax v. Swadeshi Cotton and Flour Mills Pvt. Ltd. The Supreme Court rejected the appeal filed by the Commissioner of Income-tax and upheld the decision of the High Court of Madhya Pradesh. In that case, the question related to a large amount paid by way of bonus for the calendar year 1947 in terms of an award made on January 13, 1949. The question of law referred to the High Court was :
'Whether, on 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 year 1950-51 ?'
5. The Supreme Court held that, '..... 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 section 10(2)(x), read with section 10(5) of the Act'.
6. The Supreme Court accordingly held that it was clear that it was only in 1949 that a claim to profit bonus was settled. Therefore, the only year the liability can be properly attributed to is 1949, and, hence, the High Court was right in answering the question in favour of the assessee.
7. This very principle was followed by the Supreme Court in the case of Commissioner of Income-tax v. Kalyanmal Mills Ltd. Now, there is no distinction of principle that can be made in favour of the revenue in this case from the law laid down by the Supreme Court in the above two cases. For the first time, the liability in respect of the bonus for the year 1948, in the sum of Rs. 4,16,604, was settled by the award dated November 5, 1949. The liability was thus incurred at the date of the award. Payment in respect of this liability was made by two equal amounts to December 25, 1949, and January 25, 1950. The Appellate Tribunal was accordingly right when it held in favour of the assessee that its claim for deduction in respect of the sum of Rs. 4,16,604 was liable to be allowed for the accounting year 1949 and assessment year 1959-51. The question No. 1 accordingly is answered in the affirmative.
8. The question No. 2 is not pressed and does not require to be answered.
9. The facts in connection with the question No. 3 are that the assessee-company made a debit entry in respect of the sum of Rs. 1,75,246 in the books of accounts for the accounting year 1949, in respect of leave wages payable in the next ensuing year to its employees under sections 79 and 80 of the Factories Act, 1948. Now, this claim was held not sustainable by the Appellate Tribunal. The advocate for the assessee-company has remained absent and has not made any contentions in support of its claim for deduction. Mr. Joshi for the Revenue has, in connection with this question, drawn our attention to the decision of the Madhya Pradesh High Court in the case Chhaganlal Textile Mills (P.) Ltd. v. Commissioner of Income-tax In that case also, the assessee-company purported to set apart a sum of Rs. 75,000, for payments it may have to make to its workers in the next year of account of holiday wages under section 79 of the Factories Act. The assessee-company claimed deduction in respect of that amount on the footing that it had incurred liability to pay leave wages to its employees. The Madhya Pradesh High Court in that connection referred to the provisions in section 79 of the Factories Act and pointed out that under Section 79 every worker who had worked for a period of 240 days or more in a factory during a calendar year was allowed during the subsequent calendar year leave with wages for a number of days calculated at the rate specified in sub-section (1) thereof. If a worker failed to avail himself of the whole of the holidays allowed to him during any period of twelve months, the leave not taken by him was added to the leave to be allowed to him in the succeeding calendar year, subject, however, to the limit that the total number of days of leave that could be carried forward to a succeeding year did not exceed thirty in the case of an adult or forty in the case of a child. The court further stated :
'A worker is paid for the leave period to which he may be entitled only if, (i) he takes the leave, or (ii) if he is discharged, or (iii) if being refused leave he quits his employment before the holidays are allowed to him'.
10. Having regard to the above provisions, the court observed :
'The question of payment of wages for leave to a worker would arise only if the worker goes on the leave, or if he is discharged, or on being refused leave he quite his employment. Till these circumstances arise, the liability that rests on the employer to pay to a worker wages in accordance with section 79 for leave period remains a contingent liability which the employer may or may not be called upon to discharge. That being so, any sum set of his workers going on leave the next year cannot be regarded as a permissible expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922'.
11. Now, in connection with the above finding, the court referred to certain other decisions also.
12. With respect, we agree with the findings made as above by the Madhya Pradesh High Court. Following the decision of that court, we are of the view that the assessee-company had not incurred the liability to pay leave wages in the accounting year and the claim for deduction of Rs. 1,75,246 was rightly rejected by the Appellate Tribunal. The answer to the question No. 3 accordingly is in the negative.
13. The question No. 4 does not require to be answered.
14. There will be no order as to costs.