Mercantile accounting allows deduction of accrued bonus liability under an award, but not a voluntary contingent provision.

Under the mercantile system, a bonus liability created by an industrial award is an accrued and legally enforceable obligation from the date the award is published, even if statutory enforceability is delayed; it was therefore deductible in the relevant accounting year. By contrast, a voluntary provision for bonus for a later year, made without any award, agreement, or enforceable claim, was only contingent and not deductible. The court thus distinguished between accrued liability and a mere estimate, allowing the deduction for the award-based bonus and disallowing the voluntary provision.

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Issues: (i) Whether bonus payable under an industrial award was deductible in the relevant year of account though actually paid later. (ii) Whether a voluntary provision made towards bonus for the subsequent year, without any existing enforceable liability, was deductible on mercantile accounting.

Issue (i): Whether bonus payable under an industrial award was deductible in the relevant year of account though actually paid later.

Analysis: The assessee maintained mercantile accounts, under which an accrued and legally enforceable liability may be debited even before payment. The award under the Industrial Disputes Act created a binding obligation on publication, and the statutory delay in enforceability under section 17A did not alter the fact that the liability had arisen. The amount directed by the award therefore constituted an accrued liability in the accounting year.

Conclusion: This issue is decided in favour of the assessee; the bonus payable under the award was deductible in the relevant year of account.

Issue (ii): Whether a voluntary provision made towards bonus for the subsequent year, without any existing enforceable liability, was deductible on mercantile accounting.

Analysis: The amount relating to the 1950 bonus was not founded on any award, agreement, or enforceable claim by the workers. It was only a voluntary estimate made on the basis of an association resolution. On mercantile principles, only an accrued liability can be deducted in advance, and a merely contingent or voluntary outlay does not qualify.

Conclusion: This issue is decided against the assessee; the voluntary provision for bonus was not deductible.

Final Conclusion: The court held that bonus liability arising from the award was allowable as a deduction in the year of account, while the voluntary bonus provision for the later year was not an admissible deduction.

Ratio Decidendi: Under the mercantile system, only an accrued and legally enforceable liability is deductible in the accounting year, whereas a voluntary or contingent provision is not.

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