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Judgment
Sudhindra Mohan Guha, J.—This is a reference u/s 66(2) of the Indian I.T, Act, 1922, and the question referred was as follows :
"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the "incentive bonus" provided during the year was not a proper liability and could not be deducted in arriving at the commercial profits for the purpose of considering the applicability or otherwise of the provisions of Section 23A of the Indian Income Tax Act, 1922 ?"
The assessment years involved are 1956-57, 1957-58 and 1961-62 and the relevant accounting years are the financial years ending on March 31, 1956, March 31, 1957, and March 31, 1961, respectively.
The assessee is a private limited company and manufactures razor blades known as "Bharat". In order to act as an inducement for distributors or sellers to effect larger sales of the blades manufactured by the assessee, the assessee devised a scheme of giving bonus to such distributors and sellers. The bonus given will hereinafter be referred to as "incentive bonus". The exact terms on which the assessee had agreed to pay the incentive bonus to its distributors or sellers were not made available to the authorities below. It was, however, stated that in order to be eligible for receipt of the incentive bonus the distributors should have placed more than one order in a particular year. The incentive bonus was given in the form of rebate from the sale price payable by the distributors or by credit notes. In the accounting years relevant to the assessment years 1956-57, 1957-58 and 1961-6 2, the assessee had shown in its books of account incentive bonus payable at Rs. 2,26,687-50, Rs. 4,21,181.31 and Rs. 9,95,321.62, respectively.
In the original assessments made in respect of the assessment years 1956-57 and 1957-58, the ITO had allowed the assessee''s claim for deduction of Rs. 2,26,687.50 and Rs. 4,21,181.31, respectively. Subsequently, a settlement was arrived at between the assessee and the CIT which, inter alia, provided that Income Tax assessments for the years 1956-57 and on-wards should be made on the basis of the actual payment made on account of incentive bonus given during the relevant accounting year and not on the basis of what was shown in the assessee''s books.
To give effect to the aforesaid settlement the ITO reopened the assessments for the assessment years 1956-57 and 1957-58. He allowed Rs. 41,867.38 in the assessment year 1957-58 being the actual amount paid by the assessee in the corresponding relevant accounting year as incentive bonus. As regards the assessment year 1961-62 the ITO disallowed the assessee''s claim of Rs. 9,95,321.62 being the provision made in respect of incentive bonus in the assessee''s books. However, he allowed Rs. 1,73,452.11, being the actual amount paid during the accounting year relevant for the assessment year 1961-62 as per the aforesaid settlement.
The assessee had declared dividends in respect of the assessment years 1956-57, 1957-58 and 1961-62 as under :
Assessment years General body meeting Dividend declared
Rs.
1956-57 15-1-56 1,02,500
1957-58 2-11-57 1,75,500
1961-62 3-9-61 7,15,000
According to the ITO, the dividends declared by the assessee for the said three years fell short of what the assessee should have distributed as stipulated in Section 23A of the Indian I.T. Act, 1922. He, accordingly, issued notices on the assessee to show cause as to why an order under that section should not be passed in respect of these three years. After hearing the assessee the ITO levied additional super-tax of Rs. 40,442.50 for the assess- ment year 1956-57, Rs. 1,37,373.96 for the assessment year 1957-58 and Rs. 4,82,276.50 for the assessment year 1961-62.
The appeals filed by the assessee were dismissed by the AAC. The Tribunal also dismissed the appeals filed by the assessee with a finding that the liabilities for incentive bonus shown by the assessee were not bona fide liabilities.
The assessee has not challenged the aforesaid finding of the Tribunal on the ground of perversity. In spite thereof, Mr. R.K. Murarka, learned counsel for the assessee, argues before us that the Tribunal was not right in holding that the incentive bonus provided during the year was not a proper liability and could not be deducted in arriving at the commercial profits for the purpose of considering the applicability of Section 23A of the Indian I.T. Act, 1922.
The order of the AAC forms part of the statement of the case. He has tabulated the amount of incentive bonus provided in each year, the amount of incentive bonus actually paid during each year and the amount remaining unpaid at the end of each year relating to the assessment years 1956-57 to 1963-64 as follows:
Assessment year Accounting year Opening balance of incentive bonus Amount of bonus provided in the year Total of 3 & 4 Cols. Amount of bonus paid during the year Closing
1 2 3 4 5 6 7
Rs. Rs. Rs. Rs. Rs.
1956-57 1955-56 � 2,25,687.50 2,26,687.50 � 2,26,687.50
1957-58 1956-57 2,26,687.50 4,21,182.37 6,47,869.87 4,187.58 6,06,002.29
1958-59 1957-58 6,06,002.29 3,80,038.00 9,86,040.29 89,852.18 8,96,188.11
1959-60 1958-59 8,96,188.11 9,02,158.75 17,98,344.85 62,409.76 17,35,933.10
1960-61 959-60 17,35,935.10 10,85,769.75 28,21,704.85 2,64,361.75 25,57,343.10
1961-62 1960-61 25,57,343.10 8,95,321.62 35,52,664.72 1,73,452.11 33,79,212.61
1962-63 1961-62 33,79,212.61 6,32,640.00 40,11,852.61 10,30,028.35 29,818,24.26
1963-64 1962-63 29,81,824.26 �
29,81,824.26 3,23,648.19
26,58,182.05
46,43,795.99 19,85,613.92 (sic)
It has been found by the Tribunal that the balance amount was utilised by the assessee in payment of Income Tax subsequently. The Tribunal also considered the settlement between the assessee and the CIT including the aforesaid table and came to the conclusion that the incentive bonus provided during the years was not a bona fide liability.
In view of the figures shown in the aforesaid table, in our opinion, the Tribunal is fully justified in coming to the aforesaid conclusion on the facts and in the circumstances of the case. As already stated, the assessee has not challenged the main finding of the Tribunal that the liability for incentive bonus was not bona fide. Therefore, the provisions made by the assessee cannot be taken into consideration in calculating the commercial profits for the purpose of Section 23A(1) of the Indian I.T. Act. In the premises, we answer the question in the affirmative and against the assessee.
There will be no order as to costs.
Deb, J.
I agree.