Calcutta High Court
Buxa Dooars Tea Co. (India) Ltd. vs Commissioner Of Income-Tax on 31 October, 1990
Equivalent citations: [1999]188ITR218(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1976-77, the following questions of law have been referred to this court:
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the liability to tax raised in 1958 under the Assam Taxation (on Goods Carried by Road or Inland Waterways) Act, 1954, continued to be an ascertained liability for the year in which it was ascertained notwithstanding the fact that the said Act of 1954 was struck down as void and unconstitutional by the hon'ble Supreme Court on the 26th September, 1960 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not entitled to claim deduction of its liability under the Assam Taxation (on Goods Carried by Road or Inland Waterways) Act, 1954, in computing its business income for the assessment year 1976-77 ?"
2. Shortly stated, the facts are that the assessee is a non-resident company and its method of accounting is mercantile. In the course of the assessment proceedings for the calendar year 1975 corresponding to the assessment year 1976-77, the assessee-company claimed deduction in respect of liability of Rs. 4,33,982.09 representing taxes levied by the tax authorities under the Assam Taxation (on Goods Carried by Road or Inland Waterways) Act, 1954. The said sum of Rs. 4,33,982.09, was the demand raised in pursuance of the assessments made upon the assessee-company under the said Act for the period ending September 30, 1956. The said Act was passed by the State Legislature of Assam in 1954. When an attempt was made to assess the assessee-company under the Act of 1954, it was, inter alia, contended on behalf of the assessee-company that it was not liable to be assessed under the said Act as the assessee-company was a non-resident, and it was an outside dealer. This contention was rejected by the tax authorities and, some time in the year 1958, assessments were made upon the assessee-company under the Act of 1954 raising a tax demand of Rs. 4,33,982.09 in respect of the period ending on September 30, 1956.
3. The tea gardens situated in Assam filed a representative case challenging the constitutional validity of the Act of 1954. On September 25, 1960, the Supreme Court declared the said Act as void. Subsequently, on April 6, 1961, the Assam Taxation (on Goods Carried by Road or on Inland Waterways) Act, 1961, was enacted with retrospective effect from April 25, 1954. This Act was effective up to March 31, 1962. The constitutional validity of the 1961 Act was also challenged and the Assam High Court held this Act also as void by a judgment delivered on August 1, 1963. Subsequently, however, the Supreme Court, by a judgment delivered on December 13, 1963, declared the 1961 Act as valid.
4. In the meantime, the assessee-company had filed a revision petition against the assessments made upon it in 1958 under the Act of 1954. It was the case of the assessee-company that it was not liable to be assessed at all under the Act of 1954. This revision petition was disposed of by the Commissioner of Taxes, Assam, on January 2, 1975. He upheld as valid the assessments made upon the assessee-company under the Act of 1954 for the period ending September 30, 1956.
5. Since the revision order dated January 2, 1975, quantified and fixed the liability of the assessee-company under the said Act (Act of 1954) in the sum of Rs. 4,33,982.09 and the said order was passed during the calendar year 1975 being the previous year relevant to the assessment year 1976-77, the assessee-company claimed deduction in respect of the said sum as a business expenditure in the said year. The liability for this amount was provided in the books of the assessee-company in the calendar year 1976 corresponding to the assessment year 1977-78 and an alternative claim was made before the Income-tax Officer that, if this liability is not allowed for any reason whatsoever in the assessment for the assessment year 1976-77, the same should be allowed in the assessment for the assessment year 1977-78. The Income-tax Officer rejected the contention of the assessee-company and did not allow deduction in respect of the said sum of Rs. 4,33,982.09 in either of the said two years. This action of the Income-tax Officer was also confirmed by the Inspecting Assistant Commissioner by his order dated January 24, 1979, passed under Section 144B(4) of the said Act. The Inspecting Assistant Commissioner was of the view that the liability accrued in 1958 and, therefore, the assessee-company having followed the mercantile system of accounting should have claimed such deduction in the relevant year.
6. The assessee-company filed an appeal against the assessment made by the Income-tax Officer for the said year to the Commissioner of Income-tax (Appeals)-XV, Calcutta. The Commissioner of Income-tax (Appeals), by his order dated September 3, 1985, again rejected the submissions of the assessee-company mainly on the ground that no provision was made by the assessee-company in respect of such liability in its accounts for the calendar year 1975.
7. On further appeal to the Income-tax Appellate Tribunal, the Tribunal upheld the contention of the Revenue that the said liability arose in the year 1958 and that the assessee-company was not entitled to any deduction in respect thereof in its assessment for the calendar year 1975 corresponding to the assessment year 1976-77.
8. It may also be mentioned that the Tribunal, by its order dated November 7, 1986, passed in respect of the assessment year 1977-78 has, inter alia, observed that the liability under the said Act arose and accrued on January 3, 1975, for the first time.
9. At the hearing, Mr. Poddar, learned counsel for the assessee, has contended that the Tribunal took an inconsistent stand in this matter. For the assessment year 1976-77, the Tribunal took the view that, since no provision was made in the accounts, such liability could not be allowed although it was observed that the liability accrued in the year 1958 when the Act came into force. But, for the assessment year 1977-78, when the assessee once again claimed the said deduction after making a suitable provision in that behalf in the accounts, the Tribunal did not allow the deduction on the ground that this claim pertains to the earlier assessment year. In our view, the approach of the authorities below in rejecting the claim of the assessee is erroneous. Firstly, the admissibility of deduction does not depend on the creation or making of a provision in the accounts. Reference may be made to the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT . There, the Supreme Court observed as follows (at p. 367) :
"The main contention of learned Solicitor-General is that the assessee failed to debit the liability in its books of account and, therefore, it was debarred from claiming the same as a deduction either under Section 10(1) or under Section 10(2)(xv) of the Act. We are wholly unable to appreciate the suggestion that, if an assessee, under some misapprehension or mistake, fails to make an entry in the books of account and although, under the law, a deduction must be allowed by the income-tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. 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 the books of account be decisive or conclusive in the matter."
10. Now, turning to the other contention in this case, the Act of 1954 having been declared void by the Supreme Court by its judgment delivered on September 26, 1960, all assessments made under the said Act had become void ab initio. No assessment was ever made upon the assessee-company under the new Act of 1961 and, therefore, the order dated January 2, 1975, passed by the Commissioner of Taxes, Assam, upholding the assessments made under the 1954 Act, in view of the retrospective operation given by the 1961 Act, should be considered to be the only order fixing and quantifying the liability of the assessee-company under the said Act and since that order was passed in the calendar year 1975 relevant to the previous year corresponding to the assessment year 1976-77, the deduction for such liability was clearly admissible in making assessment on the assessee-company for the assessment year 1976-77, notwithstanding that no provision for such liability was made in the books of the assessee-company for the calendar year 1975. The assessee-company had all along disputed its liability to be assessed under the said Act and this contention was finally rejected by the Commissioner of Taxes, Assam, by his order dated January 2, 1975.
11. Our attention has been drawn to the decision of this court in CIT v. Orient Supply Syndicate [1982] 134 ITR 12. In that case, the assessee-firm, which followed the mercantile system of accounting, claimed deduction of Rs. 29,000 for the assessment year 1964-65 as provident fund contribution made by the assessee under the Employees' Provident Funds Act, 1952. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim on the ground that the contribution related to earlier years. On further appeal, the Tribunal found that though this was a statutory liability under the Employees' Provident Funds Act to make contributions, it was never enforced under the Act in the earlier years, and it was only in the year under appeal that the Regional Provident Fund Commissioner called upon the assessee to make statutory contributions for the entire period from November, 1957, and that since the demand for the statutory contribution was made by the authorities for the first time during the year under appeal, the entire amount paid in that year was an allowable deduction. A letter addressed to the assessee by the Regional Provident Fund Commissioner indicated that a decision was pending for compliance with the statute for the period November 1, 1957, to December 31, 1960.
12. There the court held that, in part, the statutory liability admittedly accrued in the year in question and in part became real and enforceable in the year in question though referable to the earlier years. The sum of Rs. 29,000 was, therefore, allowable as a deduction for the assessment year 1964-65.
13. It is not in all cases correct to say that a statutory liability discharged in a particular year becomes eligible for deduction in the year in question under the mercantile system of accounting. It depends on the facts and circumstances of the case and on the statutory provisions.
14. In our view, the principles laid down in the aforesaid decision will apply to the facts of this case. The proper year for deduction of such liability as business expenditure is the assessment year 1976 77 as the liability became real and enforceable in that year after revisional applications were rejected by the Commissioner of Taxes, Assam, upholding the assessment for the period ending on September 30, 1956, under the 1954 Act.
15. For the reasons aforesaid, we answer both the questions in this reference in the negative and in favour of the assessee and against the Revenue.
16. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
17. I agree.