Back
IN THE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
RAMESH RANGANATHAN, GUDISEVA SHYAM PRASAD, JJ.
The Commissioner, Income-tax, Karnataka Central, Bangalore - Applicant
Versus
The KCP Limited - Respondent
Referred Case No.71 of 1993
Decided On : 01-05-2018
Reference by income tax Appellate Tribunal to this bench:
A) weather increase in wages on the basis of wage board award could be accepted as a liability in 1983 when it was agreed before the arbitrator that the award shall come into force on an earlier date? – assessment was filed in July 1984 for Rs.1, 47, 92, 909/– revised return was filed in January 1987 for Rs.1, 71, 92, 147/–total income Rs.11, 95, 39, 861/– payment of increased wages was claimed as deduction by the assessee –disputed parties cement manufacturer Association and workmen agreed before the arbitrator that the award shall come into force on January 1982 and remain in force until June 1986 – government via Gazette of India published the award on July 1983 – assessee made payment of increased wages for Rs.7, 75, 902/– on July 1982 –the claim of the assessee was disallowed on the ground that the award was made at the end of the previous year and assessee could not have worked out the increase in wages – appeal was filed before the CIT– Held liability accrued after the close of accounting period – deductions cannot be allowed – appeal to the tribunal– Under section 17 industrial dispute act and award becomes enforceable when it is published in the Gazette –since the award came into force after the payment of wages deductions cannot be provided for retrospective effect – tribunal referred matter to the court – the liability to pay tax cannot be based on possible consequences if the deduction was claimed earlier, in determining the liability incurred in the previous year could be taken into consideration – answer in favour of revenue.
B) Weather of payment by the assessee was Sri Lanka agent as commission could be termed as accrued liability? – Assessee claim the deduction is for Rs.99, 17, 273 as commissions paid to agents in Sri Lanka – income tax officer held commission was payable only for supplies made during the year – Rs.14, 211/– was computed as Commission paid, Rs.22, 84, 234 on machinery supplies and Rs.99, 03, 062/– what is disallowed by the income tax officer – terminal allowed the deductions holding that the Assessee followed mercantile system of accounting – held, tribunal had rightly held that the liability to pay the commission accrued when the order was secured by the agents and not when the supply was affected – answered in favour of assessee.
C) Will expenditure incurred in Sri Lanka by the agents be within the meaning of agency under section 35B(1)(b)(iv) of the Income Tax Act? - assessee claimed deduction under section 35B for the payment of Rs.33, 05, 758/– as commission – income tax officer rejected claim stating section 35 be omitted in the year 1983 – assessee not eligible for deduction, expenditure does not fall into any prescribed category – in appeal C I T also confirmed the disallowance of reduction – tribunal held section 35B does not apply to expenditures incurred after first of March 1983, Assessee paid Rs. 45 lakhs to his agents on 16 December 1982 – tribunal committed error – answer in favour of revenue.
D) liability to pay insurance premium even though premium paid to the end of the previous year - assessee claimed deduction of Rs.15, 45, 932/– as insurance premium to cover all risks – income tax officer disallowed deduction on the ground that the premium had not been paid – Assessee claimed to have only pro rata amount – income tax officer calculated the amount for the period of 745 days and – appeal in CIT held, no liability during previous years, enhanced assessment and disallowed the entire amount of Rs.15, 45, 930 to framed – tribunal allowed deduction– Insurance premium was to be paid in four instalments, it was admitted that no amount was ever paid to words insurance from 1982 till 1983, there is no liability to words the insurance policy what is said period – the basic condition for the payment of premium what is never fulfilled – answer in favour of revenue.
E) liability to pay liquidated damages when the delivery was made within the previous year ending in 1983 – question was considered by the division bench of this court answering in affirmative in the favour of the assessee – held judgement of the division bench is really I treated and the answer in favour of the assessee.
Ramesh Ranganathan, J.
1. The Income Tax Appellate Tribunal, Hyderabad bench, has referred the following questions for our opinion.
1. Whether, on the facts and in the circumstances of the case, the provision made for increase in wages on the basis of the Wage Board Award which became enforceable on the date of the publication of the award on 20.07.1983 could be accepted as a liability having accrued on 19.05.1983 within the previous year ended 30.06.1983, when the assessee agreed before the Arbitrators that the award shall come into operation from an earlier date?
2. Whether, on the facts and in the circumstances of the case, on a true construction of the agreements, the provision made for payment of commission by the assessee to the Sri Lankan agents was allowable as an accrued liability?
3. Whether, on the facts and in the circumstances of the case, the expenditure incurred under the agreements with the Sri Lankan agents will amount to an expenditure incurred for maintaining an agency abroad within the meaning of Section 35B(1)(b)(iv) of the Income Tax Act?
4. Whether, on the facts and in the circumstances of the case, the liability to pay the premium for insurance policy could be allowed as accrued liability within the previous year ended 30.06.1983 even though the indemnity depended on payment of the premium which was made only subsequent to the end of the previous year?
5. Whether, on the facts and in the circumstances of the case, the liability to pay commission under the agreement dated 18.08.1981 with M/s. Annapurna Agencies accrued on the procurement of the purchase orders within the previous year ended 30.06.1983?
6. Whether, on the facts and in the circumstances of the case, the liability to pay the liquidated damages under the terms of the agreement accrued when the delivery was made within the previous year ended 30.06.1983?
QUESTION No.6:
2. In so far as question No.6 is concerned, the Tribunal, in its order in ITA No.834/Hyd/1989 dated 26.03.1991, followed its decision for the earlier assessment year 1982-1983 in the assessees own case, in I.T.A. No.1785 of 1986, and held that the right to receive the extra price arose when the delivery was made, and the assessee had actually accounted for the extra price when the goods were actually delivered. On finding that its order for the earlier year had led to a reference, which was pending in the High Court, Question No.6, as extracted hereinabove, was also referred to this Court.
2. This question, in so far as the assessees own case for the earlier assessment year 1982-83 is concerned, was considered in R.C.No.342 of 1991 and a Division bench of this Court, by its order dated 08.08.2013, answered the question in the affirmative, against the revenue and in favour of the assessee. Following the order of the Division bench, in R.C. No.342 of 1991 dated 08.08.2013, we answer question No.6 in the affirmative, against the revenue and in favour of the assessee.
QUESTION No.1:
3. For the assessment year 1984-85, the assessee filed its return on 30.06.1984 declaring a total income of Rs.1,47,92,909/-. A revised return was filed on 06.01.1987 declaring an income of Rs.1,71,92,147/-. The Income Tax Officer passed an assessment order on 05.01.1988 determining the total income of the assessee as Rs.11,95,39,861/-. Among the deductions claimed by the assessee, in its profit and loss account, was a provision for payment of increase in wages.
4. A joint reference was made to the arbitrators, in an industrial dispute between the cement manufacturers association and their workmen, on 04.12.1981. The parties filed a memo before the arbitrators on 19.05.1983 agreeing that the award of the arbitrators would come into effect from 01.01.1982, and continue to remain in force till 30.06.1986. Thereafter the Award was made on 11.07.1983 which was received by the Central Government on 14.07.1983, and was published in the Gazette of India dated 20.07.1983. In its accounts, for the accounting year 0
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
