P. N. BHAGWATI, J. M. SHELAT, J.

( 1 ) THIS Reference relates to the assessment years 19551956 1956 and 1957-1958 of which the relevant previous years are the calendar years 1954 1955 and 1956. Two questions arise in this Reference. The first question is common to all the three assessment years and relates to certain unclaimed wages and the second question relates only to the assessment years 1956-1957 and 1957-1958 and is as regards certain deductions claimed by the assessee company in regard to expenses incurred in connection with tours abroad by two of the directors of the assessee company who were also the partners in the managing agency firm and an employee of the company.

( 2 ) THE assessee company is a public limited company and carries on business of manufacturing textiles. It maintains accounts according to the mercantile system. The expenses for wages to the employees engaged for carrying on the business of the company were shown in the accounts as liabilities as and when they accrued. In other words irrespective of the payment of the wages the assessee company used to take into account the wages due to the employees and labourers and the entire sum so due was shown as a deduction in its accounts and also allowed as such in the income-tax assessments made on the company. It sometimes happened that all the workers did not turn up to collect their dues and consequentlya portion of the savages in each year remained unpaid and such unpaid wages used to be transferred to an account called Unpaid Wages Account. As and when the workers turned up to take their unclaimed wages such amount used to be paid to them and debited to the Unpaid Wagesaccount. A separate account used to be maintained for each year in respect of such unclaimed wages. The unclaimed wages relating to the calendar years 1947 to 1949 were transferred to the general reserve fund and the amounts so transferred were brought to tax. The following were the unclaimed wages relating to the year 1950 and subsequent years. @@@these unclaimed wages were shown as liabilities and formed part of the liabilities shown in the balance-sheets of each year under the heading Other Finance. These amounts included in the liabilities under the heading Other Finance and shown in the balance-sheets were as follows:-- @@@

( 3 ) THUS for the assessment year 1955-1956 the sum involved came to Rs. 13 783 being the unclaimed wages for the years 1950 and 1951. For the assessment fear 1956-1957 the unclaimed wages came to Rs. 1 305 being such for the year 1952 and for the assessment year 1957 the unclaimed wages came to Rs. 2 543 in respect of the year 1953.

( 4 ) THE Income-tax Officer brought to tax these amounts of unpaid wages relating to the calendar years 1950 and 1951 namely Rs. 13 783in the assessment year 1955-1956. Similarly the amounts of unpaid wages relating to the calendar years 1952 and 1953 were also added to the profits in the assessments made for the assessment year 1956-1957 and 1957 The reason given by the Income-tax Officer for including these amounts in the profits during the assessment years was that as regards the balance of unclaimed and unpaid wages for the years 1950 and 1951 amounting to Rs. 13 783 there was no possibility of these amounts being paid to the floating labourers and he applied the same reasoning to the amount of unpaid wages for the subsequent years 1952 and 1953 and treated them as taxable income. When the case went before the Appellate Assistant Commissioner it was contended on behalf of the assessee company that the balances of unclaimed wages had been carried forward in the balance-sheets as liabilities from year to year and that they constituted therefore a debt due from the company to its employees that the assessee company had neither obtained any remission in respect of these liabilities nor had these liabilities ceased in any manner and that therefore there was no justification in treating these unpaid wages as income of the assessee comp

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