Statutory bonus liability accrues in the accounting year and is deductible on mercantile accounting even without a book provision.

Bonus liability under the Payment of Bonus Act, 1965 accrues in the accounting year itself as a statutory obligation, and an assessee following the mercantile system may deduct it in that year once the liability is established. The absence of a corresponding book entry is not decisive where sections 10 and 11 require payment of minimum or proportionate bonus and the amount is worked out by the statutory computation provisions. On that basis, the assessee was entitled to deduction of the bonus liability in the relevant assessment year despite no provision being made in the books.

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Issues: Whether the assessee, following the mercantile system of accounting, was entitled to deduct the bonus liability of Rs. 13,692 in the assessment year 1972-73 despite no provision being made in the books of account during the relevant year.

Analysis: The liability to pay bonus under the Payment of Bonus Act, 1965 is a statutory liability arising in the accounting year itself. Sections 10 and 11 of the Act impose an obligation on the employer to pay the minimum or proportionate bonus, and the computation of allocable surplus under section 2(4) read with sections 5 and 6 determines the amount payable. Once the liability accrues in the relevant accounting year, an assessee maintaining accounts on the mercantile system is entitled to deduction of that liability even if no corresponding entry has been made in the books. The absence of a provision in the accounts is therefore not decisive where the liability is otherwise established under the statute.

Conclusion: The assessee was entitled to the deduction of the bonus liability of Rs. 13,692 in the relevant assessment year notwithstanding the of a book entry.

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