Mercantile accounting allowed bonus deduction when the liability accrued, even without payment or book entry.

Bonus payable for the relevant accounting year was deductible in computing business profits where the assessee kept mercantile accounts, because the liability accrued in that year even though it was neither paid nor entered in the books. The absence of a book entry did not change the character of the expense, and the return form contemplated deduction of allowable items not already charged to profit and loss. The deduction was therefore allowable in the assessment year 1952-53 in favour of the assessee.

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Issues: Whether bonus payable for the relevant accounting year, though not actually paid or entered in the books during that year, was allowable as a deduction in computing business profits under the Income-tax Act.

Analysis: The relevant provisions treated bonus as deductible when it was paid or incurred according to the method of accounting employed for computing profits. Since the assessee maintained mercantile accounts, the liability for bonus for the accounting year was an expense of that year. The absence of a book entry did not alter the character of the liability, and the statutory return form also contemplated deduction of any allowable expense not already charged in the profit and loss account.

Conclusion: The deduction for bonus was allowable in the assessment year 1952-53 and the answer was in favour of the assessee.

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