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High Court Of Calcutta
Dipak Kumar Sen, Monjula Bose
COMMISSIONER OF INCOME TAX - Appellant
Versus
CALCUTTA ELECTRIC SUPPLY CORPORATION LTD. - Respondent
Income Tax Reference 491 Of 1979
Decided On : 09/08/1986
INCOME TAX - Assessment year 1967-68 - Allowable deductions - Gratuity liability - Written down value of fixed assets - Revision of written down value - Loss on remittance of profits - Additional expenses due to devaluation - Whether allowable deductions.
Fact of the Case:
The assessee, Calcutta Electric Supply Corporation Ltd., claimed deductions for gratuity liability, written down value of fixed assets, loss on remittance of profits, and additional expenses due to devaluation. The Income Tax Officer disallowed the claims, which were upheld by the Appellate Assistant Commissioner and the Tribunal.
Finding of the Court:
The court held that the assessee was entitled to a deduction for the gratuity liability, as it had accrued in the relevant previous year and was actuarially valued. The court also held that the assessee was not entitled to a deduction for the loss on remittance of profits or the additional expenses due to devaluation, as these were not revenue expenditures.
Issues: 1. Whether the assessee was entitled to a deduction for the gratuity liability. 2. Whether the assessee was entitled to a deduction for the written down value of fixed assets. 3. Whether the assessee was entitled to a deduction for the loss on remittance of profits. 4. Whether the assessee was entitled to a deduction for the additional expenses due to devaluation.
Ratio Decidendi: 1. The court held that the assessee was entitled to a deduction for the gratuity liability, as it had accrued in the relevant previous year and was actuarially valued. The court relied on the decisions in Kedarnath Jute Mfg. Co. Ltd. v. CIT and CIT v. Shyamnagar Tin Factory (P.) Ltd. 2. The court held that the assessee was not entitled to a deduction for the written down value of fixed assets, as the relevant provisions of the Income Tax Act required the written down value to be computed in accordance with the provisions of the Act of 1961, even with reference to assets in use in the previous year prior to April 1, 1961. The court relied on the decision in Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT. 3. The court held that the assessee was not entitled to a deduction for the loss on remittance of profits, as this was not an expenditure laid out or expended wholly or exclusively for the purpose of business of the assessee under Section 37 of the Income Tax Act, 1961. The court relied on the decision in Sutlej Cotton Mills Ltd. v. CIT. 4. The court held that the assessee was not entitled to a deduction for the additional expenses due to devaluation, as this was not an expenditure of a revenue nature but was of a capital nature. The court relied on the decision in Bestobell (India) Ltd. v. CIT.
Final Decision: 1. Question No. 1 was answered in the affirmative and in favour of the assessee. 2. Question No. 2 was answered in the affirmative and in favour of the Revenue. 3. Question No. 3 was answered in the affirmative and in favour of the Revenue. 4. Question No. 4 was answered in the negative and in favour of the assessee. 5. Question No. 5 was answered in the negative and in favour of the Revenue.
( 1 ) THIS reference arises out of the assessment of the Calcutta Electric Supply Corporation Ltd. , the assessee, in the assessment year 1967-68, the accounting year ending on March 31, 1967. On the applications of both the assessee and the Revenue under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following questions as questions of law arising out of its order, for the opinion of this court :"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 13,65,116 being the actuarial valuation of the assessee's liability on account of gratuity as on March 31, 1967 in accordance with the Industrial Employment (Standing Orders) Act, 1946, and under the provisions of the Industrial Disputes Act, 1947, payable to its employees constituted an allowable deduction in the computation of the profits and gains of its business for the assessment year 1967-68? 2. Whether, on the facts and in the circumstances of the case, and having regard to the fact that the assessee is a sterling company maintaining accounts in pound sterling, the Tribunal was right in holding that the written down value of the fixed assets should be determined on the basis of the rate of exchange with reference to the date of contract or the date of delivery or the date of payment for the assessment year 1967-68 ? 3. Whether, on the facts and in the circumstances of the case, a revision of the written down value of the assets comprising service lines acquired prior to April 1, 1961, which written down value had been correctly arrived at under the Indian Income-tax Act, 1922, was required for the assessment year 1967-68 by virtue of the definition of 'actual cost introduced by the Income-tax Act, 1961, with effect from the assessment year 1962-63? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of the loss of Rs. 51,844 suffered by the company on the remittance of the profits from Calcutta to its head office in the U. K. ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 15,73,806 being the additional expenses incurred by the assessee due to devaluation of Indian rupee in redeeming its Sterling Debentures constituted an allowable expenditure deductible in the computation of its business income in the assessment year 1967-68 ?"
( 2 ) QUESTION No. 2 which has been referred at the instance of the assessee is covered by a decision of this court in the case of the same assessee in Calcutta Electric Supply Corporation Ltd. v. Addl. CIT [1982] 136 ITR 777. Following the said decision, we answer the said question in the affirmative and in favour of the Revenue.
( 3 ) SIMILARLY, question No. 3 which has also been referred at the instance of the assessee is covered by a decision of this court in Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT [1977] 109 ITR 399. Following the said decision, we answer this question by stating that the written down value is to be computed in accordance with the provisions of the Act of 1961 even with reference to assets in use in the previous year prior to the April 1, 1961.
( 4 ) THE facts relevant to question No. 4 which has been referred at the instance of the assessee are, inter alia, that the assessee remitted its profits to its head office in the United Kingdom periodically for payment of dividends to the foreign shareholders. Any surplus remaining after such distribution in the United Kingdom was invested. During the relevant previous year, by reason of fluctuations in the rate of exchange, the assessee suffered a loss in the sense that it had to remit an extra amount of Rs. 51,844 for payment of such dividend. The assessee claimed deduction of the said amount from its total income. The Income-tax Officer disallowed the claim. On appeal, the Appellate Assistant Commissioner held that the assess
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