Provision for bonus not deductible without actual payment or enforceable liability under contract or statute

A provision for bonus is not deductible in computing business income when no actual payment has been made and no enforceable liability arises from contract or statute. The Court followed its earlier view that a mere book provision does not create an allowable deduction. It noted that a deduction may still be available where a statutory provision gives rise to an accrued liability, but no such statutory or contractual basis was established for the relevant year. The claim was therefore disallowed and the issue was answered against the assessee.

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Issues: Whether a provision made for payment of bonus, without actual payment or an enforceable liability arising from agreement or statute, was allowable as a deduction in computing business income.

Analysis: The amount in dispute represented a provision for bonus. The Court followed its earlier decision that a deduction cannot be claimed on a mere provision and that, in the absence of actual payment or an agreement creating liability, the amount is not deductible. It was also noted that where a statutory provision creates an accrued liability, such liability may be claimed if established, but no such basis was pleaded for the year in question.

Conclusion: The deduction was not allowable. The question was answered in the negative, in favour of the revenue and against the assessee.

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