Income Tax Appellate Tribunal - Delhi
Electronic Consortium (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 11 June, 1996
Equivalent citations: [1998]66ITD604(DELHI)
ORDER
Mehta, A.M.
1. This appeal is directed against the order passed by the first appellate authority and in order to appreciate and decide the controversy it would be necessary on our part to set out the grounds of appeal raised before the Tribunal, as follows :-
"1. On the facts and circumstances of the case the Commissioner of Income-tax (Appeals) is wrong in deducting a sum of Rs. 4,95,739 from the computation of capital employed on account of the difference in tax liability.
2. The assessee company provided liability for taxation on the basis of book profits declared. The Deputy Commissioner of Income-tax has reduced the capital employed by taking into account the income-tax which has been finally determined on the basis of the assessment. This interpretation of the Deputy CIT which has been confirmed by the Commissioner of (Appeals) is not in accordance with the law and, therefore, the deduction made from the capital employed is against the law and facts of the case."
2. The Assessing Officer reduced a sum of Rs. 4,95,739 from the "capital employed" vis-a-vis the difference between the provision made for taxation and the actual tax liability as per the revised assessment completed on 30th April, 1990 (Rs. 36,01,639 minus Rs. 31,05,900. The figure of assessed tax has been taken by us from the summary chart filed by the assessee's counsel during the course of the hearing. It may be mentioned that the aforesaid adjustment was made by the assessing officer by reference to Rule 1-A of Schedule II of the Companies (Profits) Surtax Act, 1964. On further appeal the first appellate authority confirmed the action of the Assessing Officer.
3. We have heard both the parties in respect of the claims raised and argued before us. To view the matter in proper perspective, we find it necessary to reproduce Rule 1-A (supra) along with its Explanation, as under :-
"1A. Where a company has not made any credit in any account in its books as on the 1st day of the previous year relevant to the assessment year which is of the nature of item (8) or item (9) under the heading 'Current Liabilities and Provisions" in the column relating to "Liabilities" in the "Form of Balance-Sheet", given in Part I of Schedule VI to the Companies Act, 1956 (1 of 1956), or where the Income-tax Officer is of opinion that the amount credited in such account falls short of the amount which should have reasonably been credited by it, the amount of its capital as computed under rule 1 shall be reduced by the amount which has not been so credited or, as the case may be the amount of such shortfall.
Explanation. - For the purposes of this rule, the amount of credit which should have reasonably been made by a company in relation to any account of the nature of item (9) aforesaid, means the amount of dividend declared or paid by the company, on or after the 1st day of the previous year relevant to the assessment year, for the previous year immediately preceding the first mentioned previous year."
4. A further reference to the Companies Act, 1956 shows that item (8) pertains to the Income-tax liability whereas item (9) pertains to the liability on account of dividends. In the Explanation it has been categorically stated that the amount which is considered as reasonable vide item (9) would mean the amount of dividend declared or paid by the company on or after the first day of the previous year relevant to the assessment year, for the previous year immediately preceding the first mentioned previous year. The Explanation is silent in respect of item (8) and the rule itself uses the words "should have reasonably been credited by it". In other words, the stipulation in the rule is that where there is no credit in the books of account in respect of the tax liability or the credit is lesser than the amount which should have "reasonably" been so credited then the Assessing Officer is empowered to reduce the capital base by the amount which has not been so credited or the amount of short-fall if a credit has been made.
5. In the present case the assessee by means the summary chart has stated that return was filed declaring income of Rs. 45,79,830 on which the tax payable came to Rs. 28,85,293. The provision made in the books of account was in a sum of Rs. 31,05,900 whereas the assessment was framed by the Assessing Officer on an income of Rs. 50,95,630, the tax liability beeing Rs. 32,10,246. The further relevant facts and figures are that the Commissioner of Income-tax (Appeals) on further appeal determined the income at Rs. 49,63,600 and the figure of tax payable being Rs. 31,27,068 per the said summary sheet a revised assessment was completed on 30th April, 1990 on an income of Rs. 57,16,890 the tax liability being Rs. 36,01,639. We may mention at this stage that the reduction made by the Assessing Officer to the capital base is the difference between the said figure of Rs. 36,01,639 and the provision made in the books of account viz., Rs. 31,05,900. The further facts which emerged after the date of the order of the Assessing Officer pertained to the order of the Commissioner of Income-tax (Appeals) dated 18th January, 1991 and the order of the Tribunal dated 27th June, 1994 the net result being the reduction of the income to Rs. 55,16,580 and Rs. 53,05,618 respectively and the tax liability being quantified at Rs. 34,75,445 and Rs. 33,42,539 respectively.
6. It was the assessee's case before us that the rule only provided a reasonable figure to be credited as a provision vis-a-vis the final assessed figure and there was no stipulation in law to substitute the tax liability as assessed and add thereby the difference. On the basis of the aforesaid argument and relying upon the judgment of the Hon'ble Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 he urged that the reduction made in the capital base be set aside. The learned Departmental Representative, on the other hand, supported the orders passed by the tax authorities.
7. We find sufficient merit in the arguments advanced by the learned counsel and on an interpretation of the Rule viz., 1-A along with the Explanation we are inclined to agree. As already stated by us and now reiterated, the Explanation only gives a clarification in respect of item (9) viz., dividends and in so far as item (8) is concerned viz., tax liabilities the necessity is to make a reasonable provision as viewed in the light of the other facts and figures such as the tax on the returned figure and that finally assessed, In the present case the provision is to the tune of Rs. 31,05,900 whereas according to the assessee's calculation, the final assessed figure after the order of the Tribunal is Rs. 33,42,539 the difference being a figure of Rs. 2,36,639. On the facts of the present case, we have no option, but to hold that the assessee would escape the rigours of Rule 1-A, as according to us, the assessee satisfies the test of reasonableness. We must, however, make it clear that this decision of ours would have to be considered on the facts and circumstances of each case as facts and figures in one case may satisfy the test of reasonableness whereas in another case it may not be so. The idea of the Rule is to rope in those assessees, who do not make any credit in their books of account or the credit made falls abnormally short of the tax liability actually quantified and this can only be deduced from the facts and figures of each case. Even otherwise, in the present case, the amount reduced from the tax base would have under-gone reduction as a result of the order of the Tribunal since the actual tax liability was purported to be a figure of Rs. 33,42,539 and the difference between this figure and the provision of Rs. 31,05,900 is Rs. 2,36,639. It would be the final figure which would have to be considered in case the assessee had failed on the main argument.
8. In the final analysis, we set aside the order passed by the first appellate authority and direct the Assessing Officer to re-compute the figure of capital employed by taking out of its purview the reduction made to the tune of Rs. 4,95,739.
9. In the result, the appeal is allowed.