Accrued bonus liability was deductible where year-end credits created an obligation to pay under mercantile accounting.

Bonus credited to employees' ledger accounts at year-end was treated as an accrued liability, not a contingent provision, because the credit created an enforceable obligation to pay and the assessee followed the mercantile system. In the factual setting, the amounts were regarded as deferred wages rather than a mere bonus reserve, supported by the genuineness of the claim and subsequent payment. The deduction was therefore allowable in the relevant accounting year and the disallowance was not sustainable.

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Issues: Whether the amount credited to employees as bonus at the end of the accounting year constituted an accrued liability deductible in computing business income, or only a contingent provision disallowable for the year.

Analysis: The credits made in the employees' ledger accounts during the relevant accounting year showed that the liability was not a mere provision. Once the amounts were credited, an obligation arose to pay them, and the liability could not be treated as contingent. The claim was genuine, payment was subsequently made, and the assessee maintained its accounts on the mercantile system. In the factual setting, with low wages and absence of other employee benefits, the amount described as bonus was treated as deferred wage rather than a contingent bonus liability.

Conclusion: The amount was allowable as a deduction in the relevant accounting year, and the disallowance was not sustainable.

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