Calcutta High Court
Commissioner Of Income-Tax vs Bisra Stone Lime Co. Ltd. on 14 January, 1986
Equivalent citations: [1987]164ITR693(CAL)
JUDGMENT Satish Chandra, C.J.
1. This reference relates to the assessment year 1971-72, the previous year ending on March 31, 1971. The assessee in its account books of this year made a provision for payment of bonus of Rs. 9,71,327. The employees' union raised a dispute which was, however, settled on October 15, 1971, whereunder, an additional sum of Rs. 3,93,516 was also payable towards bonus. The assessee claimed this additional sum as a deductible allowance. The Income-tax Officer confined the allowance to the original amount of Rs. 9,71,327 for which the assessee had made a provision in its books of account for the assessment year. He repelled the claim for the additional liability on the ground that it was incurred after the expiry of the previous year. This view was upheld by the Appellate Assistant Commissioner. The assessee took the matter in appeal to the Tribunal. The Tribunal agreed with the contention urged on behalf of the assessee and held that the liability related to the assessment year in question though it was quantified later. It was, hence, a deductible allowance for the assessment year in question.
2. Another dispute between the assessee and the Department related to the claim for deduction under Section 80-I of the Income-tax Act, 1961 ("the Act"). The Income-tax Officer and the Appellate Assistant Commissioner held that the deduction allowable under Section 80-I should be calculated after setting off the unabsorbed development rebate carried forward from the assessment year 1970-71. On appeal, the Tribunal reversed the finding. It relied upon the decisions of the Kerala High Court in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192 and of the Mysore High Court in CIT v. Balanoor Tea and Rubber Co. Ltd. [1974] 93 ITR 115, and held that the assessee is entitled to relief under Section 80-I before deduction of the unabsorbed development rebate.
3. At the instance of the Department, the Tribunal has referred the following the two questions for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the assessee is entitled in law to the deduction of the additional liability for bonus of Rs. 3,93,516 as per settlement with its employees entered into on October 15, 1971, as an admissible deduction in the computation of its business income for the assessment year 1971-72 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deduction allowable under Section 80-I of the Income-tax Act, 1961, should be calculated before setting off the unabsorbed development rebate carried forward from the assessment year 1970-71 against the profits and gains of the previous year relevant to the assessment year 1971-72 ? "
4. In respect of the first question, the position is that the amount of additional bonus related to the assessment year 1971-72, that is, after the enforcement of the Payment of Bonus Act, 1965. The Tribunal has rightly found that the liability to pay bonus for the year 1971-72 was a statutory liability under the aforesaid Act. The liability having accrued in the year in question, its quantification subsequent to the expiry of the previous year, will none the less be an allowable deduction for the year in question. Under the Payment of Bonus Act, the assessee is under statutory liability to pay bonus for each accounting year. In other words, the provisions of the Payment of Bonus Act imply that the amount of bonus quantified as payable for a particular year would be deemed to be the liability to pay bonus for that particular year, and so will be a part of the revenue expenditure for that year. The liability having accrued in a particular year, its subsequent quantification will not defer the liability to the year in which the quantification takes place.
5. Learned counsel for the Revenue invited our attention to the decision of the Supreme Court in CIT v. Swadeshi Cotton & Flour Mills (P.) Ltd. [l964] 53 ITR 134. In that case, the assessee followed the mercantile system of accounting. In the circumstances, the Supreme Court held that the employer who follows the mercantile system of accounting, incurs the liability towards profit bonus only when the claim, if made, is settled amicably or by industrial adjudication. This case is distinguishable. In the present case, the liability is statutory and, by force of statute, accrues in every accounting year. Hence, its quantification in the subsequent year will not make any difference. The decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 is more in point. There it was held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights ; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. It is true that in the present case, the assessee made a provision for Rs. 9,71,327 only in its books of account. But that is not decisive of the matter. The amount payable to satisfy the statutory liability included the additional amount of Rs. 3,93,516. In our opinion, the Tribunal took the correct view of law.
6. The second question is now settled by a Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT . In that case, it was held that in computing the profits of the assessee for the purpose of the special deduction under Section 80E of the Act, items of unabsorbed depreciation and unabsorbed development rebate carried forward from earlier years will have to be deducted before arriving at the figure from which the 8% contemplated by Section 80E is to be deducted. This decision applies as Section 80E is the successor to Section 80-I. The deduction allowable under Section 80-I is to be computed after setting off the carried t forward unabsorbed development rebate.
7. This court in CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763, relying upon the Supreme Court decision in Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243, held that relief under Section 80-I is to be given before setting off the unabsorbed development rebate. In Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, the Supreme Court held that the decision in Cloth Traders (P.) Ud.'s case [1979] 118 ITR 243 did not lay down the correct law. The courts approved the law laid down in the case of Cambay Electric Supply Industrial Co. Ltd. . In this view, reliance on the decision of this court in Orient Paper Mitts Ltd.'s case [1983] 139 ITR 763 is not helpful.
8. We, therefore, answer the first question in the affirmative and in favour of the assessee and against the Department and the second question in the negative and in favour of the Revenue and against the assessee.
9. There will be no order as to costs.
M.G. Mukherji, J.
10. I agree.