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Issues: Whether the bonus set-on amount carried forward under the Payment of Bonus Act, 1965 was deductible as an expenditure under the Income-tax Act, 1961, and whether the Tribunal was justified in rejecting the assessee's accounting treatment of that amount.
Analysis: The set-on amount was required to be carried forward and utilised only for future payment of bonus under the statutory scheme. Reading section 15 of the Payment of Bonus Act, 1965 with the Fourth Schedule and the prescribed register, the amount was treated as money set apart for the benefit of workmen and not as an amount available for the assessee's business use. The Court held that, once deposited under the statutory mechanism, the assessee was divested of the ability to deploy the amount in its business, and the sum therefore bore the character of an outgoing incurred under legal compulsion. On that footing, the amount answered the description of expenditure and was not disallowed merely because it stood in the bonus set-on account.
Conclusion: The bonus set-on amount was deductible as expenditure, and the questions referred were answered in favour of the assessee and against the Revenue.
Ratio Decidendi: A statutory bonus set-on amount that the assessee cannot utilise for business and must carry forward for future payment under the Bonus Act is expenditure deductible under the Income-tax Act.
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