The central legal point established in the judgment is that the requirement of actual payment under Section 43B of the Income Tax Act must be satisfied, and mere setting apart or depositing of the amount does not fulfill this requirement.

CHITRA VENKATARAMAN,J.

1. This Tax Case (Appeal), filed at the instance of the assessee as against the order of the Income Tax Appellate Tribunal relating to the assessment year 1997-98, was admitted by this Court on the following substantial questions of law:

"1. Whether in the facts and circumstances of the case, the Tribunal ought to have considered the fact that the act of depositing the bonus amounts payable to the workers into a separate bank account is to be construed as actual payment made in the present accounting year?

2. Whether on the facts and circumstances of the case, the Tribunal was right in holding that bonus paid based on settlement reached after the accounting year is allowable in present assessment year?"

2. It is seen from the facts narrated herein that in respect of the accounting year relevant to the assessment year 1997-98, there was a dispute between the management and employees as regards the percentage of bonus payable by the assessee. While the assessee declared 15% bonus, the employees insisted bonus at 20% as in the earlier year. On the refusal of the same by the management, the workers went on strike since 20th October, 1996. It is seen from the documents placed before this Court that consequent on the conciliation talk, there was a settlement, whereby the management agreed to pay 19% bonus and the strike was withdrawn from 16th November 1996. According to the assessee in respect of the admitted percentage of bonus payable, the assesee deposited the said amount in a separate bank account called Thanjavur Textiles Employees' Bonus Account. The amount was deposited on 26.11.1997 and the amount was paid on 15.12.1997 to the workers based on the agreement entered into on 13.12.1997. The Assessing Authority viewed that as per the provisions of Section 43B of the Income Tax Act, payment of bonus would be an admissible deduction if and only the amount was actually paid before the due date for filing the return. Since the amount was paid long after the due date for filing the return, mere depositing it in a bank account would not entitle the assessee for deduction. Accordingly, the claim was rejected.

3. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who agreed with the assessee following the earlier order passed in the assessee's own case for the year 1994-95. Accepting the case of the assessee that the reasons for belated payment was on account of the workers going on strike and not accepting the payment of bonus, which compelled the assessee to deposit the said amount in a separate account maintained by the asssessee, the Commissioner of Income Tax (Appeals) allowed the appeal filed by the assessee.

4. Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal. The Tribunal pointed out that the assessee had not produced any evidence that it had created irrevocable trust called Workers Bonus Payment Trust. The Tribunal, keeping in mind the object of Section 43 B of the Income Tax Act that the claim for deduction is allowable on actual payment, set aside the order of the Commissioner of Income Tax (Appeals) and restored the order of the Assessing Authority holding that setting apart particular amount towards bonus would not tantamount to actual payment. Aggrieved by this, the assessee is before this Court.

5. Learned counsel appearing for the assessee placed reliance on the decisions reported in (2010) 326 ITR 308 (Commissioner of Income Tax V. Sri Venkatesa Mills Ltd.); (2004) 266 ITR 623 (Commissioner of Income Tax V. Chackolas Spinning and Weaving Mills Ltd.) and(2009) 319 ITR 306 (Commissioner of Income Tax Kolkata – III V. Alom Extrusions Limited) only to contend that when the assessee had in fact set apart the amount payable by it to the workers, deposited it in a separate bank account, on account of refusal of the workers to receive, such remitting of the amount in a deposit should be treated as an actua