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7. Before us, counsel for the parties reiterated the same contentions as raised before the Tribunal. The contention of the assessee has to be viewed in the context of the scheme of the Payment of Bonus Act, 1965. The said Act applies to all factories and it provides by Section 10 that every employer shall be bound to pay to every employee in an accounting year a minimum bonus at 4% of the salary or wages or Rs. 40, whichever is higher. Section 11 provides that where the allocable surplus computed in the manner given in that Act exceeds the minimum bonus, the employer shall be bound to pay bonus which is proportionate to the salary earned by the employees subject to the maximum of 20%. If the allocable surplus exceeds even the amount of maximum bonus payable to the employees, such excess shall be carried forward and set on in the succeeding accounting year under Section 15 of the Act Sub-section (2) of this section provides that if, in the subsequent accounting year, there is no available surplus or the allocable surplus falls short of the minimum bonus payable to the employees, then the amount carried forward and set on shall be utilised for the purpose of distributing the minimum bonus in that accounting year. The first question that falls to be determined is the extent of the liability of the assessee under the Payment of Bonus Act. This liability has to be determined only with reference to Sections 10 and 11 of the Act. It is obvious that the Act requires the employer to pay only the minimum bonus of 4% of wages or Rs. 40 and a maximum bonus of 20% in the accounting year. Section 15 does not require the payment of any bonus in this or even in any subsequent assessment year until and unless there is a shortfall. Therefore, the liability determined by the Act is only to the extent of 20% in one accounting year. The provision requiring the assessee to carry forward the excess to the extent of another 20% of the allocable surplus is only in the nature of a guarantee for the payment of minimum bonus in the subsequent accounting years in case there is any shortfall.

8. Section 15 merely provides for a provision to meet a further liability which may arise on a certain contingency of there being inadequate allocable surplus in the subsequent accounting year. Such a provision, in our opinion, cannot be regarded as a liability of the accounting year in which the provision is required to be made.

9. The second question that arises is whether the assessee was entitled to claim that even a provision made for meeting a further liability should be treated as a current liability for the purpose of computing the total income. A contingent liability discounted and valued can be taken into account as a trading expense if it is capable of valuation and if profits cannot be properly estimated without taking them into account. The assessee has to satisfy that the amount required to be set on by the statute was a contingent liability and that the profits of the accounting year cannot be properly estimated without taking it into account. The provision required to be made by the assessee by the Payment of Bonus Act for meeting the liability to pay bonus in the subsequent accounting years in the case of any shortfall is not a contingent liability of this accounting year. It is in fact the amount set apart to meet a contingent liability of subsequent accounting years. Therefore, it cannot be said that the profits of this accounting year cannot be properly estimated without taking that amount into account. The assessee is, therefore, entitled to deduct only the bonus required to be paid in the accounting year which is to the extent of a maximum of 20% of the allocable surplus in computing the total income of the accounting year. Any provision made to meet the liability of the assessee in the subsequent accounting years cannot be considered to be an expenditure laid out for, the purpose of business in computing the profits of this accounting year and cannot, therefore, be allowed to be deducted.