Ascertained liability governs bonus deduction; later industrial adjudication cannot reopen prior-year accounts for tax relief.

Under the mercantile system, a bonus payment is deductible only when the liability becomes ascertained in the relevant accounting year. A bonus liability determined later by industrial adjudication cannot be carried back to reopen the earlier year's accounts or claimed as a deduction in that prior assessment year. Applying this principle, the court held that the disputed bonus amount was not deductible in the assessment year in question and was taxable in the year in which the liability was finally settled.

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Issues: Whether bonus liability determined by industrial adjudication after the close of the accounting year was allowable as a deduction in the earlier assessment year.

Analysis: The liability to pay bonus under the mercantile system arises only when the bonus claim is finally settled amicably or by industrial adjudication. A later determination of the amount does not permit reopening of the earlier year's accounts for deduction in that year. The governing principle applied was that only an ascertained liability of the relevant accounting year can be deducted in that year.

Conclusion: The amount of Rs. 6,975 was not deductible in the assessment year in question and the answer was against the assessee.

Final Conclusion: The reference was disposed of by holding that the disputed bonus amount could not be claimed in the earlier assessment year and was taxable according to the year in which the liability was ascertained.

Ratio Decidendi: Under the mercantile system, a deduction is allowable only when the liability has become ascertained in the relevant accounting year, and a subsequent industrial award does not warrant reopening that year's accounts.

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