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1991 Supreme(Cal) 288
High Court of Calcutta
A.K. Sengupta, Shyamal Kumar Sen, JJ.
Commissioner Of Income-Tax – Appellant
Versus
Padmavati Raje Cotton Mills Ltd. – Respondent
Income-tax Reference 44 of 1990
Decided On : Jun 07, 1991
In the mercantile system of accounting, a statutory liability discharged in a particular year may become eligible for deduction in the year in question if it becomes real and enforceable in that year, even though it is referable to earlier years.
Headnote:
INCOME TAX - DEDUCTION - MARKET FEES - ALLOWABILITY - MERCANTILE SYSTEM OF ACCOUNTING - LIABILITY BECOMING REAL AND ENFORCEABLE IN RELEVANT SUBSEQUENT YEAR - DEDUCTION ALLOWED.
Fact of the Case:
The assessee-company claimed a deduction of market fees levied in the financial year 1980-81, which was relevant to the assessment year 1981-82. The Assessing Officer disallowed the claim on the ground that the liability arose in the preceding years and there was no justification for claiming it as a provision in the current year. The Commissioner of Income-tax (Appeals) upheld the disallowance. On appeal to the Tribunal, it was held that the liability became enforceable in the assessment year 1983-84, and allowed the deduction.
Finding of the Court:
The court held that the principles laid down in the case of CIT v. Orient Supply Syndicate were applicable to the facts of the instant case. The statutory liability became real and enforceable in the relevant subsequent year though the demand was referable to the earlier years. The assessee was entitled to treat the demand of the market fee as final and enforceable, and the liability accrued on the basis of the said demand at that stage.
Issues: Whether the assessee is entitled to a deduction of market fees levied in the financial year 1980-81, which was relevant to the assessment year 1981-82, in the assessment year 1983-84?
Ratio Decidendi: The court held that the general principles laid down by the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. are binding, but they are not inflexible and, in special facts and circumstances, an exception could be made. The facts in the instant case were quite different and it was not necessary to apply the principles laid down in the case of Kedamath Jute Manufacturing Co. Ltd. The principles laid down by the court in Orient Supply Syndicate's case were applicable. The statutory liability became real and enforceable in the relevant subsequent year though the demand was referable to the earlier years. The assessee was entitled to treat the demand of the market fee as final and enforceable, and the liability accrued on the basis of the said demand at that stage.
Final Decision: The court answered the first question in the negative and in favor of the assessee, and the second question in the affirmative and in favor of the assessee. There was no order as to costs.
Shyamal Kumar Sen, J.
1. ON an application under Section 256(1) of the Income-tax Act, 1961, the following questions are referred to this court for opinion :
"(1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal was perverse in law in applying the decisions of the High Court in the two cases of CIT v. Orient Supply Syndicate and Shalimar Chemical Works Pvt. Ltd. v. CIT, in the present case for allowing a deduction of market fees amounting to Rs. 3,07,334 levied in 1977-78 up to March 31, 1979, the liability of which was provided for and written off in 1979-80 and the same was re-levied in 1980-81, in the assessment year 1983-84 although the facts and circumstances of the present case are not similar to those of the cases relied on by the Tribunal ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the claim of deduction of Rs. 3,07,334 being market fees levied in 1977-78 up to March 31, 1979, from two percent to three per cent., the liability of which was provided and was written off in 1979-80 but the same was re-levied on 1980-81, was an allowable deduction in the assessment year 1983-84 ?"
2. THE facts, inter alia, as appear from the statement of case are that the assessee is a resident company. THE assessment year involved in question is 1983-84. THE accounting period relevant to the assessment year ended on March 31, 1983. THE Assessing Officer completed the assessment for the assessment year 1983-84 under Section 143(3) of the Income-tax Act, 1961, on February 28, 1986. In the course of the assessment proceedings, the Assessing Officer found that a sum of Rs. 3,07.334 was debited on March 31, 1983, on account of market fee levied in the financial year 1980-81. He further found that the amount was included in the purchase account. THE Assessing Officer relied on the relevant entry in the journal in respect of this amount by translating the extract from the journal book for the year ending on March 31, 1983. These entries are as follows : Rs. 3,07,334.67 Market fees account dated March 31, 1983 3,07,334.07 To liabilities for expenses
Being market fees levied in 1977-78 up to March 31, 1979, from two per cent. to three per cent., liability provided and was written off in 1979-80. Again, this liability was re-levied in 1980-81 and liabilities provided. The entry itself indicated that the market fee was levied in the accounting period 1980-81, which is relevant to the assessment year 1981-82, and it had no relevance to the assessment year 1983-84. This liability for market fee arose on May 15, 1980, when the Governor of Haryana issued the Ordinance in this respect. This date, according to the Revenue, is relevant to the assessment year 1981-82. The Market Committee, Sirsa, asked the assessee to deposit Rs. 3,37,579.90 by December 10, 1980. This date was also relevant to the assessment year 1981-82. The Assessing Officer further found that neither the demand had arisen in the accounting period relevant to the assessment year 1983-84 nor had it been paid during that period. Accordingly, he disallowed the assessee's claim of deduction of Rs. 3,07,334 in the assessment year 1983-84.
3. THE assessee-company being aggrieved by the disallowance made by the Assessing Officer took the dispute before the Commissioner of Income-tax (Appeals). THE Commissioner of Income-tax (Appeals) heard the assessee-company and, after considering its contentions, passed the following order:
"THE facts stated by the Income-tax Officer are not disputed by the authorised representative. THE only argument advanced is that the assessee was under a bona fide belief that it will get relief in this court and, therefore, the provision was not made in the earlier years. THE argument has no merit. THE liability arose in the preceding years and there is subsequently no justification for the assessee's action in claiming this amount as a provision in the curr
