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1980 Supreme(Cal) 334
High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
NATIONAL INSURANCE CO.OF INDIA - Respondent
Income-Tax Reference 39 Of 1977
Decided On : 08/27/1980
A.K.SEN GUPTA, N.K.PODDAR, R.N.Saha
A provision for pension based on legal and scientific basis is an admissible deduction in computing the profits of a company.
Headnote:
INCOME TAX - Deduction - Pension provision - Accrued liability - Admissibility - Whether the provision of pension of Rs. 1,31,279 represented on accrued liability and was an admissible deduction in computing the profits of the assessee-company for the assessment year 1972-73?
Fact of the Case:
The assessee, a foreign insurance company taken over by the Government of India, claimed a deduction of Rs. 1,31,279 for pension provision in computing its profits for the assessment year 1972-73. The ITO disallowed the deduction, and the AAC upheld the disallowance. The Tribunal, however, allowed the deduction.
Finding of the Court:
The court held that the provision for pension was an accrued liability and was, therefore, an admissible deduction in computing the profits of the assessee-company.
Issues: Whether the provision of pension of Rs. 1,31,279 represented on accrued liability and was an admissible deduction in computing the profits of the assessee-company for the assessment year 1972-73?
Ratio Decidendi: The court relied on the decision of the House of Lords in Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, and its own decision in CIT v. Eastern Spinning Mills Ltd., Income-tax Reference No. 30 of 1977 (judgment delivered on 7-6-80), to hold that the provision for pension was an accrued liability and was, therefore, an admissible deduction.
Final Decision: The question referred to the court was answered in the affirmative and in favor of the assessee.
( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following question has been referred to this court:"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provision of pension of Rs. 1,31,279 represented on accrued liability and was an admissible deduction in computing the profits of the assessee-company for the assessment year 1972-73?"
( 2 ) THE assessee was a foreign company carrying on insurance business in India. It was taken over by the Govt. of India with all its assets and liabilities with effect from January 1, 1973. The assessment year involved is 1972-73, the corresponding accounting period having ended on December 31, 1971. The total income was computed at Rs. 21,42,130 after disallowing Rs. 1,79,413 provided in the accounts by way of "pension provision". The assessee felt aggrieved and submitted an appeal before the AAC, regarding the disallowance of a sum of Rs. 1,31,279 in computing its total income for the relevant assessment year. The amount of Rs. 1,31,279 was the sum determined on actuarial valuation as a liability for pension to the employees under a scheme drawn up by the company for the purpose. The AAC observed that in the past, the company had been claiming the actual payment of pension to the ex-employees made during the respective years, but during the year under appeal, the assessee had carried out actuarial valuation of its liability to pay pension to its employees in future also and claimed such liability as a deduction during the year instead of actual payments. The AAC further observed that the allowance made by the ITO, for the year under appeal, of the actual payment instead of the deduction for the estimated liability on the basis of actuarial valuation as claimed by the assessee was consistent with the past practice and any departure therefrom would result in an anomalous position. The AAC also considered that the amount of Rs. 1,31,279 claimed was in the nature of provision notwithstanding that this amount had been quantified after an actuarial valuation and, therefore, the amount was not deductible in computing the assessee's profit for the year under consideration.
( 3 ) THE assessee further preferred an appeal to the Tribunal and the Tribunal observed, inter alia, as follows :"the liability for the year 1971 is shown at Rs. 9,99,247 made up of Discounted Value of Pensions to existing pensioners at Rs. 6,19,396 and discounted value of prospective pensions to active staff at Rs. 3,96,240 as reduced by a sum of Rs. 16,389 being the discounted value of annual contribution of 20% of expected future salaries. The corresponding figures for the earlier year are Rs. 8,67,968, Rs. 5,38,152 and Rs. 3,50,364 as reduced by Rs; 20,548, respectively, for discounted value of pensions to existing pensioners and the discounted value of prospective pensions to active staff and discounted value of annual contribution of 20% of expected future salaries. The difference between the two amounts of Rs. 9,99,247 and Rs. 8,67,968 has been claimed by the assessee for deduction during the relevant year. It is an admitted fact that there was no trust and the amount represented unfunded contribution. "
( 4 ) THEREAFTER, referring to the relevant decisions, the Tribunal observed that, in the instant case before them, the amount provided during the year was the discounted value of pension to the existing pensioners. Therefore, according to the Tribunal, there was a definite liability to pensioners which had already arisen and the departmental representative did not seriously object to the allowance of such liability. The Tribunal, accordingly, allowed the deduction claimed for.
( 5 ) IN the circumstances, the question as indicated hereinbefore has been referred to this court under Section 256 (1) of the I. T. Act, 1961.
( 6 ) IN consonance with the principle laid down in the decision of the House of Lords in the case
