Madras High Court
South Madras Electric Supply ... vs Commissioner Of Income-Tax on 27 April, 1998
Equivalent citations: [1999]240ITR503(MAD)
JUDGMENT M.S. Janarthanam, J.
1. The assesses, namely the South Madras Electric Supply Corporation Ltd., Tiruchirapalli, claimed a sum of Rs. 8,15,903, being the contribution to "consumers' rebate reserve fund" for the assessment years 1951-52, 1952-55, 1955-56, 1956-57, 1960-61 to 1965-66, 1971-72 and 1972-73 relatable to the accounting years 1950-51, 1951-52, 1954-55, 1955-56, 1959-60 to 1964-65, 1970-71 and 1971-72. The assessee in fact was following the "mercantile system of accounting".
2. According to the provisions of the Electricity (Supply) Act, 1948, the assessee has to make a provision for rebate to consumers. The assessee denied its responsibility to create reserve for rebate to the consumers. The Government, however, did not agree with the contention of the company and the company had to create a reserve. There is a charge on the company. If only such reserve had been created in the relevant accounting years, it should have been allowed as a charge on the profits of the company. , Even when the Government quantified the reserve to be created, the company ignored such a direction and kept quiet Finally, it had now claimed the entire contribution to the consumers' rebate reserve fund in the year in question, namely 1972-73. It cannot claim the contribution, which the company should have made for earlier years against the profit of this year. It cannot be the case of the assessee that it was not aware of such provision in the Electricity (Supply) Act and the amount had been quantified and the liability had been fastened to the company only in the accounting year. The very fact that correspondence was going on between the Government and the company for a number of years establishes that it abdicated its responsibility to create the reserve and claim such contributions against the profit of the company in the relevant years. So, it cannot claim the arrears for earlier years against the profit of the year in question.
3. Accordingly, the Inspecting Assistant Commissioner of Income-tax (Assessment) Trichy (for short "the IAC"), in the assessment year 1972-73, allowed the contribution to the consumers' rebate reserve in a sum of Rs. 50,705 and thus made disallowance of the rest of the claim for the earlier assessment years, that is to say, 1951-52, 1952-53, 1955-56, 1956-57, 1960-61 to 1965-66 and 1971-72, relating to the accounting years 1950-51, 1951-52, 1954-55, 1955-56, 1959-60 to 1964-65 and 1970-71.
4. On appeal, the Commissioner of Income-tax (Appeals)-VI, Madras-34, (for short "the CIT(A)"), concurred with the view of the Inspecting Assistant Commissioner.
5. On further appeal, the Income-tax Appellate Tribunal, Madras Bench-"D", Madras (for short "the Tribunal"), also concurred with the view of the Commissioner of Income-tax (Appeals).
6. It is on these facts, the Tribunal, at the instance of the assessee, referred the question of law, as below, for the opinion of this court :
"Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal, is right in holding that a sum of Rs. 6,76,921 contributed during the previous year to the reserve for rebate to consumers in respect of the accounting years 1950-51 to 1964-65, is not to be deducted in arriving at the taxable profits of the assessee ?"
7. Arguments of Mr. P. H. Aravind Pandian, of Subbaraya Aiyar, Padmanabhan and Ramamani, learned counsel appearing for the assessee, and Mr. R. Sivaraman, learned counsel, representing Mr. C. V. Rajan, learned junior standing counsel, representing the Revenue, were heard.
8. It is not in dispute that the assessee did not create any such statutory reserve in the accounting years 1950-51 to 1964-65. Yet another fact, about which there is no dispute, is that the assessee had all along been disputing its claim to make a reserve and the assessee once and for all settled the dispute and created a reserve for all these years only in 1972-73. The taxing authorities, up to the level of the Tribunal, allowed deduction in respect of the reserve created in the accounting year 1972-73 and disallowed the deduction in respect of the other accounting years. The disallowance or deduction in respect of the other years is the issue covered by the question under reference. We have already referred to that the assessee had been maintaining his books of account in the "mercantile system of accounting".
9. Our attention had been drawn to the decision of a Division Bench of the Bombay High Court in the case of CIT v. Central Provinces Manganese Ore Co. Ltd. [1978] 112 ITR 734, wherein their Lordships-Kantawala C.J., and Chandurkar J. (as he then was), held the view that if a statutory liability arises in a particular year, then, an assessee maintaining his books of account on the mercantile system of accounting is entitled to claim a deduction in the year in which the liability arises notwithstanding the fact that he is taking steps to dispute his liability and he fails or omits to make entries in his books of account. The mere fact that such a deduction was not claimed before the Income-tax Officer is not of much importance. If the liability arises, then a claim can be made bona fide at any stage before any higher authority, who is competent to grant relief.
10. In holding such a view, their Lordships applied the cases in Kedamath Jute Mfg. Co. Ltd. v. CIT and Pope the King Match Factory v. CIT [1963] 50 ITR 495 (Mad). We respectfully agree with the view taken by their Lordships of the Bombay High Court.
11. On the face of the said decision, we are of the view that the Income-tax Appellate Tribunal is right in holding that the sum of Rs. 6,76,921 contributed during the previous year to the reserve for rebate to consumers in respect of the accounting years 1950-51 to 1964-65 is not to be deducted in arriving at the taxable profits of the assessee. The question is answered accordingly.
12. The tax case (reference) is thus disposed of. There shall, however, be no order as to costs, on the facts and in the circumstances of the case.