Bonus provision deduction allowed where section 43B was inapplicable to the relevant assessment year and facts

Provision made for employee bonus was held allowable as a deduction because the amount had not been paid by year-end, but clause (c) of section 43B of the Income-tax Act applied only from 1 April 1989 and was not applicable to the relevant assessment year. The amount was also found not to fall within the extended expression relating to an employee welfare fund, and section 43B(b) was held inapplicable on the facts. The assessee therefore succeeded on the reference.

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Issues: Whether the provision made towards bonus payment was allowable as a deduction, and whether section 43B of the Income-tax Act, 1961 applied to disallow the claim.

Analysis: The provision related to bonus payable to employees and had not been paid by the close of the accounting year. Clause (c) of section 43B was inserted only with effect from 1 April 1989 and was therefore inapplicable to the assessment year in question. The amount did not fall within the extended expression relating to a fund for the welfare of employees, and section 43B(b) was also held inapplicable on the facts.

Conclusion: The provision for bonus was allowable as a deduction and the assessee was entitled to succeed on the reference.

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