Delhi High Court
Commissioner Of Income Tax vs Bechtel India (P) Ltd. on 7 November, 2007
Bench: Madan B. Lokur, S. Muralidhar
ORDER
1. After hearing learned Counsel for the parties, we admit the appeal and frame the following substantial questions of law for consideration:
(a) Whether the Income Tax Appellate Tribunal ('Tribunal') was correct in law in deleting the addition of Rs. 1,88,40,319/- made by the Assessing Officer ('AO') on account of depreciation claimed in the current year by making retrospective change by the assessed in the rates of depreciation while computing book profit under Section 115JA of the Income Tax Act, 1961 ('Act')?
(b) Whether the Tribunal was correct in holding that the AO is not empowered to re-compute the profits in the Profit & Loss Account by excluding provision made by the assessed for arrears of depreciation while computing book profit under Section 115JA of the Act?
(c) Whether the Tribunal was correct in law in deleting the addition of Rs. 47,78,670/- made by the AO being depreciation claimed by the assessed @ 100% of the assets costing below US $ 1000?
(d) Whether the Tribunal was correct in law in deleting the addition of Rs. 1,75,40,226/- made by the AO being the capital expenditure debited by the assessed to the Profit & Loss Account while computing book profit under Section 115JA of the Act?
2. There are certain other questions sought to be urged by the Revenue which we are not prepared to entertain. We give our reasons hereafter.
3. One question concerns a challenge to the decision of the Tribunal deleting the addition of Rs. 37,67,226 made by the AO as a result of disallowing deduction of provident fund which was not paid by the assessed before the due date but within the grace period as stipulated under the relevant statute. Admittedly, this issue stands covered against the revenue and in favor of the assessed by of the decision of this Court in Commissioner of Income Tax v. Modi Spinning & Weaving Mills Co. Limited [2007] 292 ITR 479 (Delhi). Therefore, no substantial question of law arises in this regard.
4. The next set of questions concern the provision for gratuity in the sum of Rs. 16,05,869 which according to the AO was an unascertained liability and had to be added back to the book profit in terms of Explanation (c) to Section 115JA of the Act. The AO had noticed in the assessment order that of the aforementioned provision for gratuity, a payment of Rs. 10,80,000/- was made on 7th January, 1998 and the balance amount of Rs. 16,05,869/- was credited during the year. The submission on behalf of the assessed was that this was an ascertained liability made towards contribution to an approved gratuity fund and therefore allowable as a deduction. The Tribunal accepted this contention. It held that Section 40A(7)(b) of the Act which enables a grant of a deduction in respect of a provision made towards contribution to an approved gratuity fund will override Section 43B of the Act which provides that such deduction will be allowed only in the year in which it is actually paid.
5. We find that and the requirement of Clause (c) of the Explanation to Section 115JA of the Act is that "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities" should be added to the book profit. Under the circumstances, the AO was first required to determine if the provision for gratuity in the sum of Rs. 16,05,869/- was an unascertained liability. The AO erred in directing the addition of this amount without appreciating that the mere fact that a certain sum constituting a statutory liability is not actually paid during the year in question will not convert it into an unascertained liability. The law in this regard is well settled and has been explained by the Supreme Court in Bharat Earth Movers Ltd. v. Commissioner of Income Tax . There the Supreme Court held that that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged on a future date. Therefore in the facts of the present case, the said sum of Rs. 16,05,869/- made as provision for payment of gratuity was an ascertained liability though not discharged in the year in question.
6. Further, we are in agreement with the Tribunal that Section 40A of the Act will have an overriding effect over Section 43B of the Act. In the first place Section 40A(1) is an unequivocal non-obstante clause and since Section 40A(7)(b) specifically permits a deduction of a sum constituting the provision towards an approved gratuity fund, the said provision will take precedence over a comparatively general provision like Section 43B. Secondly, Section 40A(7)(a) which disallows deduction of any provision of gratuity to employees on their retirement is itself made subject to Section 40A(7)(b) which allows such deduction as long as it is made towards an approved gratuity fund. There is no dispute that in the instant case the provision made is towards contribution to an approved gratuity fund. Therefore the claim by the assessed for deduction on this score was clearly justified. We are accordingly of the opinion that no substantial question of law arises in this regard as well.
7. The appeal is admitted on the four questions as referred above.
8. Filing of paper book is dispensed with.