Matching Fragments
[Emphasis supplied]
It may be stated nay emphasised that no portion of this amount shown as General Reserve No. 2 was utilised for payment of wages. In fact, it transpired in the course of the hearing that the reserves of Rs. 4,62,33,275 were utilised partly for issue of bonus shares to the extent of Rs. 96 lakhs. It also transpired that Kanjur Division of Echjay Industries Pvt. Ltd., the appellant herein, was taken over with effect from 1-1-1983 as per scheme of arrangement approved by the Bombay High Court by their order dated 3-9-1986 by a company called Echjay Forgings Pvt. Ltd. In the manufacturing, trading and profit & loss account for the year ended 31-12-1983 a deduction of Rs. 20,70,000 was claimed as settlement of wages. It ia not necessary for us to dwell on the course that the amount of Rs. 2,20,00,000 traversed in the subsequent years. It is enough to say that this amount, which was, for the reasons stated by the Directors as above, described as general reserve in the accounts and claimed as liability of the assessee for the year under appeal was, in fact, treated as a reserve for the subsequent years and transferred and utilised as such when there was a split in the manufacturing divisions of the company.
Asst. Year Amount
1981-82 Rs. 2,20,00,000
1982-83 Rs. 36,60,240
1984-85 Rs. 68,07,487
In respect of calendar year 1983, argued Shri Tiwari, a subsidiary company called Echjay Forging Co. was formed and the balance sheet of the appellant-company as on 31-12-1983 (page 692 of Vol. III of paper book) showed an excess of assets over liabilities transferred to Echjay Forgings (P.) Ltd. of Rs. 1,03,50,437. The subsidiary company had (as stated earlier) claimed deduction of an amount of Rs. 20,70,000 under settlement wages account for the year ended 31-12-1983 in respect of the same liability. Shri Tiwari argued that so far as the appellant-company was concerned, there was in fact a cessation of liability for payment of back wages if at all there was any liability in this regard and the company had not offered anything by way of income for such cessation or remission or liability. Shri Tiwari's next contention was that there was no change in the legal position relating to the Industrial Disputes Act during the year 1980. All the sections of the Industrial Disputes Act to which references were made by Shri Harish were on the statute book during the year of account and in the earlier years and the judgment of the Court which was given on the facts and circumstances of that particular case did not in terms create a commercial liability in the case of a third party particulary when there is no dispute regarding the provisions of law and what is decided is a mixed question of facts and law. Shri Tiwari relied on a catena of judgments in support of this proposition. However, in particular, he drew our attention to the decision of the Supreme Court in the case of India General Navigation and Railway Co. Ltd. v. Their Workmen AIR 1960 SO 219 in support of his argument that there was no change in the law relating to industrial disputes ever since the Supreme Court decided the case in India General Navigation & Railway Co. Ltd. (supra). By and large, in that case, the Supreme Court decided that whereas it may be open to the management to dismiss a workman who has taken part in an illegal strike, in determining the question of punishment, a clear distinction has to be made between those workmen who not only joined in such strike but also took part in obstructing the loyal workers from carrying on their work and took part in violent demonstrations or acted in defiance of law and order on the one hand and those workers who were more or less silent participants in the strike on the other. An Industrial Tribunal has to consider the question of punishment keeping in mind the overriding consideration of the full and efficient working of the industry as a whole. In support of the proposition that a Court judgment does not in terms create a commercial liability, Shri Tiwari relied on a decision of the Bombay High Court in CIT v. Babulal Narottamdas [1976] 105 ITR 721, Madras High Court in Seshasayee Paper and Boards Ltd. v. IAC [1986] 157 ITR 342 and the Supreme Court in CIT v. Travancore Sugars and Chemicals Ltd. [1973] 88 ITR 1. Elaborating his argument further, Shri Tiwari argued that a judgment of a Court, and particularly that of the Supreme Court, has to be considered as a declaration of the law as it always stood and not as a retrospective amendment of the law.
5.1 The method of accounting regularly employed by the assessee had not been a mercantile system of accounting particularly when it came to payment of wages. The appellant always claimed deduction for wages when they were actually paid. Even before the decision of the Supreme Court in Gujarat Steel Tubes Ltd.'s case (supra), the appellant had settled 69 cases of workmen out of 101 cases out-of-court between the period June 1973 and December 1979. The modus operandi adopted by the assessee was to reach individual settlement with the workers who were retrenched, pay them some compensation and they would agree not to press their claim before the Tribunal and payments made subsequent to such settlement were claimed as deduction in the year of payment. Shri Tiwari illustrated this point by drawing our attention to Note 2 of Schedule 19 of the balance sheet of the appellant-company for the year ended December 1983. There is a reference in this Note to the fact that lease rent on plant & machinery leased out to Echjay Forgings (P.) Ltd. will be accounted for on receipt basis. Alternatively and without prejudice, Shri Tiwari argued that even if it is assumed that the system of accounting followed by the assessee was mercantile, the year in which the liability in respect of back wages really accrued has to be ascertained. It was Shri Tiwari's submission that this liability did not arise in this year but was claimed in the accounting year ended 31-12-1980 as a scheme of tax planning because this was a year of exceptionally high profits. Shri Tiwari has given figures of net profit as per the audited accounts for calendar year 1980 and seven earlier calendar years to prove that the profits never exceeded Rs. 80 lacs any time in the past. In fact, they ranged between Rs. 24.64 lacs in 1974-75 and Rs. 79.65 lacs in 1977-78. They had gone down to Rs. 31 lacs in calendar year 1978 and amounted to Rs. 74.92 lacs in calendar year 1979. It was on]y in this previous year (calendar year 1980) that the book profits after provision for taxation were as high as Rs. 2,39,33,004. Shri Tiwari argued that each year was an independent year and constitutes a unit of assessment. The year in which the expenditure was incurred or the liability accrued was important as decided in the case of Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506 (SO). Calendar year 1980 was the year of non-event. No important event whatsoever had taken place which could have relevance for the issue in this case. This was not the year in which the dispute between the workers and the management started. This was not the year in which the settlement of dispute between the workers and the management had taken place. This was not the year in which the award of the Tribunal became known. In fact, it came as late as in 1983. Therefore, nothing had happened during the year of account to create a liability of as much as Rs. 2,20,00,000 towards payment of compensation and back wages to the striking workers. According to Shri Tiwari, the learned counsel for the appellant had completely misread the judgment of the Supreme Court when he stated that that judgment laid down the law of the land which was that dismissal without enquiry per se was illegal and therefore full back wages would have to be paid. That judgment was given after discussing all the relevant case law on the subject and after taking into account the peculiar facts and circumstances concerning the dispute in that case. Shri Tiwari further argued that the authorities relied upon by the learned counsel were not applicable in the present case because all those authorities did not deal with cases relating to earlier years' provision or liability or based on adjudication or orders by statutory authority or notification. They were all cases where the liabilities were undisputed. A liability which is basically contractual like the one with which we are concerned in the present case, even if governed by certain provisions of the statute, cannot be said to be a determined liability during the subsistence of the dispute and it was certainly not a statutory liability as it did not spring directly from the statute. A statutory liability is a liability which arises by virtue of a statute like a levy or tax imposed by State or a Central or a cess imposed by a municipal body. In support of this proposition, Shri Tiwari relied on Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33 (AIL), CIT v. Ratlam Strawboard (P.) Ltd. [1985] 152 ITR 425 (MP) and CITv. R.V. Briggs and Co. (P.) Ltd. [1985] 155 ITR 495 (CaL). In order to claim a deduction for liability there should be a definite obligation to pay a debt owed to someone. Further, a personal liability must be shown to have accrued. Shri Tiwari relied on a decision of the Supreme Court in CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 to elaborate what should be considered as tests of accrual of personal liability. He pointed out that the assessee's stand was not consistent and the assessee cannot be allowed to take two separate stands before two different authorities - CIT v. O. P. N. Arunachala Nadar [1983] 141 ITR 620 (Mad.) - and pointed out that the so-called actuarial valuation relied upon by the assessee was not in fact an actuarial valuation since no basis was given for calculating the liability ; it was only a report of an actuary; it was defective and unreliable as the manner in which the calculations were made was not known. Shri Tiwari also pointed out that there was a clear distinction in facts of the case decided by the Supreme Court in the assessee's case and there was nothing in the opinion given by the solicitors to indicate that the liability to any compensation and back wages arose as a result of a High Court judgment. The solicitors' opinion only indicated that as a result of the judgment cited by them, they were likely to lose the dispute which was referred to the Industrial Tribunal. The solicitors did not state that the High Court judgment ipso facto gave rise to a liability for payment of back wages in the calendar year 1980 in which year actually the matter was sub judice inasmuch as the Tribunal had not given its finding. Shri Tiwari further argued that this is a liability which is related to the dispute and can be determined when the dispute is settled either by settlement reached out of court or when the award of the Tribunal was received. In any case such a liability related to earlier years. It cannot, in any case, be calculated as a single year's liability of such magnitude in an intervening period (namely, during the year of account) when nothing of significance relating to the dispute had happened. This was also not a statutory liability inasmuch as'it was not enforceable by independent machinery for enforcement provided by the statute. The argument taken before the Industrial Tribunal was contrary to the arguments.
