Contingent bonus set-on is not deductible as current business expenditure in income-tax computation.

Amount carried forward as "set on" under section 15 of the Payment of Bonus Act, 1965 was treated as a contingent provision for a possible future shortfall, not as a current liability of the relevant accounting year. The liability for that year was confined to the statutory minimum and maximum bonus under sections 10 and 11, and the set-on amount did not qualify as expenditure laid out for business purposes or as a deductible liability in computing total income under the Income-tax Act, 1961. The reference was answered against the assessee, and the amount was held not deductible.

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Issues: Whether the amount carried forward as "set on" under section 15 of the Payment of Bonus Act, 1965 was deductible as a liability or business expenditure in computing the assessee's total income under the Income-tax Act, 1961 for the assessment years 1968-69 and 1969-70.

Analysis: The liability to pay bonus in the relevant accounting year was confined to the statutory minimum and maximum payable under sections 10 and 11 of the Payment of Bonus Act, 1965. The amount required to be carried forward under section 15 was not a current liability of that accounting year, but only a provision to meet a possible shortfall in a subsequent year. Such a provision was contingent in nature and could not be treated as expenditure laid out for business purposes or as a liability necessary for proper computation of the year's profits. The amount, therefore, did not satisfy the test of deductibility under the Income-tax Act, 1961.

Conclusion: The "set on" amount under section 15 of the Payment of Bonus Act, 1965 was not deductible in computing the assessee's total income and the reference was answered against the assessee.

Ratio Decidendi: An amount set apart under section 15 of the Payment of Bonus Act, 1965 as "set on" for a future accounting year is a contingent provision for a possible future liability and not a deductible liability or business expenditure of the current accounting year under the Income-tax Act, 1961.

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