A. Raghuvir, C. J. — The assessee in this case is India Carbon Limited at Gauhati and the questions in the Reference relate to assessment year 1976-77. The subject matter in the questions pert­ain to bonus amounts set apart ( called set-on amount ) whether can be deducted from the profit and loss account of the assessee. 2. The assessee claimed deduction of two amounts Rs. 8,56,241/-as bonus paid and Rs. 7,36,915/- the amount deposited in set on account. The former was claimed under section 36 (1) (ii) and the latter under section 37 of the Income-tax Act, 1961. The Income-Tax Officer allowed the deduction of Rs. 8,56,241/- but rejected the claim of Rs. 7,36,915/-. The Appellate Assistant Commissio­ner at Shillong ordered both to be deducted. The Tribunal held the latter can not be held to have been paid and following a de­cision in I. T.A. No. 5429 (Cal) of 1975-76 dated May 11,1978 overturned the decision of the appellate authority. 3. In the past like claims made by the assessee were allowed in assessment year 1966-67 to 1969-70 and in assessment years of 1970-71 to 1973-74. The Tribunal therefore directed the Income-Tax Officer to recompute the amounts in assessment years 1972-73 1973-74 and 1975-76, The assessee thereupon was heard to protest that the assessee adopted mercantile method of accounts and without any ostensible reason if accounts are reopened the interests of the assessee will be adversely affected. Finally at the instance of the assessee under Clause (1) of section 256 the following three questions are referred to this Court: (1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in reversing the order of the Appellate Assistant Commissioner and disallowing the statutory liability of Bonus set-on computed according to the provisions of the Payment of Bonus Act, 1965. (ii) Whether on the facts and circumstances of the case, the Tribunal was justified in disregarding and rejecting the method of accounting regularly employed by the appellant company, (iii) Whether on the facts and circumstances of the case the Tri­bunal was justified in holding that Bonus set-on cannot be regar­ded as a liability of the year in which the computed amount sho­uld be carried forward for being set on in the manner prescribed under the Payment of Bonus Act, 1965 ? 4. 4. The questions turn on the meaning of the word bonus therefore a brief discussion on the etymological sense of that word is not out of place. Bonus in the past was understood conceptually a premium paid in addition to what is strictly due ; a gratuity to which the recipient had no right to make a demand ; a premium of extra remuneration to encourage the performance of workman or workmen ; a gift in recognition of successful performance of work. Bonus at times is used in invidious terms- Sometimes the word is used to mean what is offered by the vendors. These nuances of the word bonus are found/defined in Black's Law Dictionary, 5th Edn. p. 165. We are concerned in this case what is paid to wo­rkmen as bonus. 5. Whenever bonus was paid to a workman in the past it was understood a gift and workmen had no claim, or a legal right. The conceptual meaning of the word gave rise to numerous disp­utes in industrially advanced countries. Speaking of Textile industry in India started at two textile centres Bombay and Ahmeda-bad. In both these two centres bonus was paid. In the two centres after the First World War in 1917 ten percent of wages was paid and 15 per cent of wages was paid in the calendar year 1918. The conceptual difficulty however persisted. A Committee of Mill owners in 1920 recommended a month's pay be paid to workers in 1921 as bonus. But in the succeeding year when bonus was not paid due to adverse circumstances in the textile trade a gene­ral strike of workers ensued. Similar disputes arose in other industries intermittently. Thereupon the Provincial Government of Bombay formed a Bonus Dispute Committee to report whether bonus was an enforceable legal right or whether bonus was a customary and gratuitous claim. Before the Committee could submit a report the country was engulfed in the shadows of the great economic depression of the mid-twenties of the century. However some mills even during the days of depression paid bonus. After the depression in the period of Second World War due to sterling balances in the United Kingdom there was boom in the trade and workmen were paid bonus. After the Second World War the conceptual question resurfaced. The Labour Courts in the country held textile mills which did not earn profits need not pay bonus. After the depression in the period of Second World War due to sterling balances in the United Kingdom there was boom in the trade and workmen were paid bonus. After the Second World War the conceptual question resurfaced. The Labour Courts in the country held textile mills which did not earn profits need not pay bonus. The other mills which did not earn profits need not pay bonus. The other frills were ordered to pay bonus. The issue whether bonus was a right continued to be raised. In cases where bonus was paid the issue was the methods adopted for ascertainment of profits was raised ; whether depreciation and rehabilitation amounts were to be deducted before profit was declared. In some case interest paid on capital and working capital was deducted and such deductions was disputed. 6. In 1958 the Supreme Court in the State of Mysore vs. The Workers of Gold Mines, AIR 1958 SC 923 held bonus was not gratuitous payment nor bonus was a deferred wage. With this dicta; the conceptual controversy came to an end. But in this case methods adopted for ascertainment of bonus were not consi­dered. That aspect was scrutinised in Associated Cement Companies Ltd. vs. Its workmen, AIR 1959 SC 967 and by and large what was held by the Labour Courts were approved. The disputes did not abate instead spread into all Industrial fields in the fifties. 7. The Government of India in 1961 to obtain industrial peace appointed a Committee"cailed a Tripartite Commission. The Comm­ittee on June 24, 1964 submitted the report. The report was accepted on December 6, 1964 with modifications. The Government of India promulgated on May 29,1965 an Ordinance and Parliament by Act 21 of 1965 replaced the ordinance. That Act called the Payment of Bonus Act 1965 to regulate the bonus payments in the country with some exceptions. 8. The Act contains 40 Sections, 4 Schedules and under section 38 Rules are promulgated by the Government. How gross profits is to be ascertained is explained in the Act (S. 4). Two expressions-available surplus and allowable surplus are elucidated (S. 5). What sums to be deducted from gross profits is set out (S. 6). How taxes are calculated is explained (S. 7). The workmen who are eligible (S. 8) or those who are not eligible for bonus are specified (S. 9). Two expressions-available surplus and allowable surplus are elucidated (S. 5). What sums to be deducted from gross profits is set out (S. 6). How taxes are calculated is explained (S. 7). The workmen who are eligible (S. 8) or those who are not eligible for bonus are specified (S. 9). When a minimum bonus is to be paid (S. 10) and when maximum bonus is payable is stated in the Act (S. 11). Ascertainment of bonus in certain cases is dealt in sections 12 and 13. Section 14 of the Act set out how number of working days be reckoned. How amounts are to carry forward (referred as 'set-on') and when the set-on amount is to be utilised is elucidated (S.I 5) with the help of fourth Schedule. The utilised amount is called set off amount. Two Registers are prescribed to be maintained in the Rules. One of the two shows the set-on and set-off amounts in Form at B. The following table extracted from the Register 'B' of the assessee is self explanatory. Since nothing turns the maintenance of accounts in this case we may now turn to the issues in the case. SI No. Acctt year Assessment year. Particulars. Amount. A B C D 1. 1964-65 1966-67 Set on created for the year after payment of bonus for the year under the Payment of Bonus Act, 1965. - 1,07,200 2. 1965-66 1967-68. ... - - 1,35,300 3. 1966-67 1968-69. ... - 1,64,800 4. 1967-68 1969-70. ... - 1,85,200 ________ 5,92,000 5. 1968-69 1970-71 Set-on of 1964-65 credited to Profit & Loss A/C. after expiry of 4 years period. - 1, 07,200 _________ 4,85,300 ……… - 2,06,032 _______ 6,91,332 6. 1969-70 1971-72 Set on of 1965-66 credited to Profit & Loss A/C. after expiry of 4 years period. 1,35,300 __________ 5,56,032 2.00,279 _________ 7,56,311 7. 1970-71 1972-73 Set-on of 1966-67 credited to Profit & Loss A/C after expiry of 4 years period. 1,64,800 __________ 5,91,311 ........ 2,26,060 ___________ 8,17,571 8. 1971-72 1973-74 Set-on of 1967-68 credited to Profit & Loss A/C. after expiry of 4 years period. - 1,85,200 ________ 6,32,371 3,92,355 _________ 10,24,726 9. 1972-73 1974-75 Set-on of 1968-69 utilised for payment of Bonus. 2,06,032 _________ 8,18,694 10. 1973-74 1975-76 Set-on of 1969-70 credited to Profit & Loss A/C. after expiry of 4 years period. 2,00,280 ________ 6,18,414 ............... 6,97,002 13,15,416 11. - 1,85,200 ________ 6,32,371 3,92,355 _________ 10,24,726 9. 1972-73 1974-75 Set-on of 1968-69 utilised for payment of Bonus. 2,06,032 _________ 8,18,694 10. 1973-74 1975-76 Set-on of 1969-70 credited to Profit & Loss A/C. after expiry of 4 years period. 2,00,280 ________ 6,18,414 ............... 6,97,002 13,15,416 11. 1974-75 1976-77 Set-on of 1970-71 credited to Profit & Loss A/C. after expiry of 4 years period. 2,26,059 _______ 10,89,357 7,36,915 ________ 18.26.272 The assessee in the relevant accounting year paid bonus of Rs. 8 56,241/-and that amount was deducted. There is no controversy about this amount. The amount of Rs. 7,36,915/-was carried forward inset-on amount. That amount is not allowed to be deducted as it is not an expenditure. 9. What constitutes expenditure in fiscal enactments like the word jurisdiction in jurisprudence is a many splendoured controversy. The meaning of the word expenditure gained many facts and dimensions over the years in fiscal Statutes. The learning in its trial brought to surface many fresh controversies. We recount some cases out of large number of cases cited at the debate in the instant case. The cases related to 1922 Income tax Act repealed and the extant 1961 Act. We have avoided reference to cases of U.K. to avoid bulk to the opinion. 10. The Supreme Court dealt in 37 1TR 66 (Indian Molasses Co. (P) Ltd. vs. Commissioner of Income-tax, West Bengal) with the meaning of the word expenditure in 1922 Act and pointed out what is paid out and paid away is the primary meaning of the word expenditure. The meaning was emphasised to show amounts which passed out irretrievably from the hands of the assessee alone are expenditure. This elaboration later generated further controversies which is not relevant now in this case. There is an illuminating discussion in 53 ITR 140 (Commissioner of Income tax vs. Malayalam Plantation Ltd.) where cases of the Apex Court including the decisions from United Kingdom were reviewed. The expenditure it was pointed is wider in meaning and scope than when used expenditure for earning profits. In explaining the content in the two it was pointed out all that is spent in a business cannot be construed expenditure. The expenditure it was pointed is wider in meaning and scope than when used expenditure for earning profits. In explaining the content in the two it was pointed out all that is spent in a business cannot be construed expenditure. A case with reference to taxes paid under the Wealth tax Act, 1957 arose in 60 ITR 277 (Travancore Tatanium Product Ltd. vs. Commissioner of Income Tax, Kerela ) whether tax paid by the assessees under the Wealth tax Act was expenditure. The dicta in the case was very widely answered to hold in the negative. In 84 ITR 735 at page 747 (Indian Aluminum Co. Ltd. vs. C.I.T.) that case was explained later. When an assessee possessed assets connected with business and unconnected with business the wealth tax paid for the former alone was expenditure and taxes paid in connection with the latter is not expenditure. The next case is 65 ITR 381 (C.I.T. vs. Walchand & Co. (P) Ltd.) where two difficult expressions, commercial expediency and reasonableness of expenditure was considered. The question of reasonableness juxtaposed with expenditure often disputed in fiscal cases. The Court pointed out commercial expediency and reasonableness have to be viewed not from the revenue point of view. This was emphasised not to get obsessed with the interests of revenue but is to be looked at from the point of view of business. In looking at the business it is implied not to look at the businessman's point of view. These interdictions and aids are explained in that case. These are thorny problems no doubt but these aspects do help the adjudicators. Finally as on today in 156 ITR 585 (Shree Sajjan Mills Ltd. vs. CIT) a case dealing with gratuity fund created for the benefit of employees in an irrevocable trust was allowed to be deducted. This is the same in shade and in content which we referred as irretrievable expenditure in the first case we have referred. 11. Among the reported cases there are three cases from Madras High Court wherein Act 21 of 1965 was not considered but that Court was aware of the incoming shadow of the statute. The first case is 95 ITR 365 (CIT vs. Somasundaram Mills (P) Ltd). which was considered in the second case 99 ITR 445 (CIT Madras II vs. Anamallais Bus Transport (P) Ltd.). The two cases were cons­idered in 118 ITR 739 (Addl. The first case is 95 ITR 365 (CIT vs. Somasundaram Mills (P) Ltd). which was considered in the second case 99 ITR 445 (CIT Madras II vs. Anamallais Bus Transport (P) Ltd.). The two cases were cons­idered in 118 ITR 739 (Addl. CIT vs. Annamallais Bus Transport (P) Ltd). In the first and the second case the case of a prudent businessman when he sets apart amounts for bonus was considered whether it can be all -wed as expenditure. The prudence it was said results in a contingent liability but can not be allowed as expenditure. In the last of three cases it was emphasised workmen do not have right in such amounts (resulting even out of prudence) the amounts are not expenditure and cannot be deducted. 12. There are three other cases where the issue was considered under the Act 21 of 1965. The decision in 154 ITR 655 (Malwa Vanaspati & Chemical Co. Ltd. vs. CIT) was a case from Madhya Pradesh where it was held section 15 did creates a liability and set on amounts do not discharge a subsisting liability therefore-such amounts were held reserved for future contingent liability. The assessee did not deposit the amount with the Bonus Act authority therefore it was additionally stated to support that reserved amount is not expenditure. The second case is from Andhra Pradesh 155 ITR 19 (Rayal-aseema Mills Ltd. vs. CIT, A.P.) In that case it was held set on is not covered by section 28 and 37 of the IT Act therefore not an expenditure. The conclusion was elaborated as the set on amount was carried forward for a limited period for four years, therefore such amounts are not amounts like paid to third party therefore n; t loss not a trading liability and not an expenditure. The third case is from Kerala 162 ITR 587 (P.K. Mohammed Pvt Ltd. vs. CIT) where set on amount was construed to be deposits made under compulsion of a Statute to satisfy a contingent liability to be paid in future. The amount is retained by the assessee is shown to hold the amount is not expended. To this aspect we will return anon. 13. The learned counsel for the assessee in this case argued that set on amount is not prohibited to be deducted under section 40 (a) (ii) therefore suca amounts are expenditure for the business. The amount is retained by the assessee is shown to hold the amount is not expended. To this aspect we will return anon. 13. The learned counsel for the assessee in this case argued that set on amount is not prohibited to be deducted under section 40 (a) (ii) therefore suca amounts are expenditure for the business. The learned counsel elaborated the assessee can not utilise the amount and in that sense assessee has parted with the amounts irretrievably. This plea we consider is the nub of the issue raised in the instant reference. The Standing Counsel for the "Revenue argued that the amount is a reserve fund. The amount stands deposited in the account books of the assessee. The amount can be utilised by the assessee therefore is not an expenditure. Such an amount it is argued to be paid in future and cannot be allowed either under section 28 or under section 30 to 36 or under section 37 of the Income tax Act. 14. We have earlier indicated that under the Rules two sets pf Registers are to be maintained by every industrial unit. The Register 'B' shows set on and set off in that allocable and amounts payable as bonus, amounts carried forward are to be shown. In the Fourth Schedule in the prefatory para show employees are entitled to be paid in column 3 amount payable as bonus and in column 4 set on or set off of the year carried forward and in column 5 total amount is carried forward for payment. The words used in section 15 of the Act are "utilised for the purpose of payment of bonus" indicate the amounts shown in column 3, 4 and 5 of the Fourth Schedule are amounts which are to be paid or have been paid to the employees. Likewise in column 2 to 5 in Form 'B' show the amounts paid or to be paid. These columns indicate coupled with the words in section 15 of the Act amounts deposited are for the benefit of workmen in such a case the amounts we hold cannot be used or utilised by the assessee for business purposes. Likewise in column 2 to 5 in Form 'B' show the amounts paid or to be paid. These columns indicate coupled with the words in section 15 of the Act amounts deposited are for the benefit of workmen in such a case the amounts we hold cannot be used or utilised by the assessee for business purposes. In case if amounts are used by the assessee and the amounts are lost in the business can a business-man be heard to contend that amounts are lost in business there is nothing left to be paid to workmen as such he may be absolved from paying the bon,us to workmen, 15. This question in our view is crucial. The answer to the question is that the assessee cannot utilise for the business the set on amount. The assesses on making the deposit is divested of right to invest or utilise the amount for business. May be in the Rules these aspect is to bi dealt more elaborately. But as at present the column shovvn in the Fourth Schedule, the column shown in Form B and the language used in the prefatory para of the Schedule and the language employed in section 15 of the Act do indicate the set on amounts after deposit is made cannot be utilised by the assessee. They are to be paid in future in the course of a cycle of four years. If this interpretation is accepted the assessee can utilise in business cannot be sustained. In answering this question we are also aware that we have repeatedly relied on word utilisation. We also steer clear of ownership of amounts as the amounts in set on are akin to funds in irrevocable trust referred in 156 ITR 585. We may also state that we are looking at issue from the point of view of business in 65 ITR 381. Thus, we hold amount which cannot be utilised and deposited perforce of Statute in our view is expenditure. The assessee if utilises or used the amount in such a case it would be a contravention of ,the Act and is liable to be punished under section 28 of the Act. He can be imprisoned, fined or inflicted of both the punishments. 16. The next point that has been argued on behalf of the assessee is on the basis of commercial expediency. He can be imprisoned, fined or inflicted of both the punishments. 16. The next point that has been argued on behalf of the assessee is on the basis of commercial expediency. We have answered earlier that the Apex Court stated that whether it is an expenditure or not has to be looked at from the perspective of a business, not from the perspective of Revenue or businessmen and if we look at that perspective, as we have concluded, the set on amount is not available for business. This answer we are conscious does not cover on all fours the expression of commercial expediency. We have earlier referred this expression takes more than one concept and we may have to grapple with all aspects in a future case. For the present the question is pivoted on expenditure and we hold set on amount for the aforesaid reasons is an expenditure incurred by the assessee therefore has to be deducted. 17. Before parting with this opinion we may refer to one argument advanced by the learned counsel for the Revenue that if amount deposited should gain interest and that interest should form the part of the corpus of deposit since no indication is given in the Statute or in the rules therefore the mere deposit of account cannot be expenditure under the Income tax Act. What is pointed out by the learned counsel for the Revenue is an omission on the part of the rule making authority. Deposits if are remaining unutilised for four years or for any fraction of period some rule could be prescribed to accrue interest as such a measure will prove beneficial, to workmen and employers. 18. We answer the three questions in the nagative in favour of the assessee and against the revenue. No cost, W. A. Shishak, J- I agree.