1989 (5) TMI 19 - HC - Income Tax

Court denies deduction for future liabilities under Payment of Bonus Act, 1965. Limited employer liability emphasized.

The court ruled in favor of the Revenue, denying the assessee's claims for deduction under the Payment of Bonus Act, 1965 for the assessment years 1968-69 ... Business Expenditure, Remuneration Issues:- Determination of liability under the Payment of Bonus Act, 1965 for assessment years 1968-69 and 1969-70.- Deductibility of 'set on' amount under the Payment of Bonus Act, 1965 for accurate reflection of time costs.- Interpretation of provisions of the Payment of Bonus Act, 1965 and Income-tax Act, 1961 for determining total income of the assessee.Analysis:- For the assessment year 1968-69, the assessee claimed a deduction of Rs. 33,840 as a provision for bonus under the Payment of Bonus Act, 1965. The Income-tax Officer denied the deduction, leading to appeals. The Appellate Assistant Commissioner and the Tribunal also rejected the claim, stating that the provision under section 15 of the Act is not a liability of the accounting year, allowing deduction only for the bonus required to be paid in that year up to 20% of the allocable surplus. The Tribunal held that any excess amount set aside for future liabilities is not deductible for the current year's total income calculation.- Regarding the assessment year 1969-70, the Income-tax Officer did not discuss the disallowance of the bonus claim. The Appellate Assistant Commissioner directed the allowance of the claim, deeming it as an ascertained liability rather than contingent. However, the Tribunal overturned this decision, instructing the Income-tax Officer to consider only the actual liability of the assessee for that year. The Tribunal emphasized that the provision for future liabilities is not a current liability for the purpose of computing total income.- The court analyzed the Payment of Bonus Act, 1965, emphasizing that the liability of the employer is limited to paying the minimum bonus of 4% or Rs. 40 and a maximum bonus of 20% in the accounting year. Any excess amount carried forward for future years is a provision for contingent liability, not a current expenditure. Referring to precedents, the court concluded that the 'set on' amount under the Act is not deductible for income-tax purposes. Therefore, the questions raised were answered in favor of the Revenue for both assessment years, denying the deduction of the 'set on' amount and upholding the limited liability under the Payment of Bonus Act, 1965.- Both judges concurred with the decision, resulting in the denial of the assessee's claims for deduction under the Payment of Bonus Act, 1965 for the assessment years 1968-69 and 1969-70. No costs were awarded in the judgment.