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1993 Supreme(Guj) 571
IN THE HIGH COURT OF GUJARAT
G.T. Nanavati, S.M. Soni, JJ.
Industrial Machinery Manufacturers Pvt. Ltd. - Petitioner
Versus
Commissioner of Income-Tax (No. 2) - Respondent
Income-tax Reference No. 354 of 1980
Decided On : 16-02-1993
For the Petitioner:J.P. Shah, Advocate
For the Respondent: B.J. Shelat, instructed by Messrs. R.P. Bhatt and Co.
A fiscal liability under a statute should be allowed as a deduction in the year in which the relevant transactions take place, even if the precise quantification of the liability comes later.
Headnote:
INCOME TAX - DEDUCTION - SECTION 80-I - TEXTILE MACHINERY OR ACCESSORIES - EDUCATION CESS - LIABILITY - DEDUCTION - MERCANTILE SYSTEM OF ACCOUNTING - LIABILITY UNDER STATUTE - DEDUCTION IN YEAR OF TRANSACTION OR ASSESSMENT - OPTION OF ASSESSEE.
Fact of the Case:
The assessee, a manufacturer of humidifiers used in textile mills, claimed a deduction under section 80-I of the Income Tax Act, 1961, on the ground that humidifiers are textile machinery or accessories. The assessee also claimed a deduction for education cess payable for the financial years 1966-67 to 1970-71, which was billed during the accounting year 1971-72.
Finding of the Court:
The Tribunal rejected both the claims. The assessee challenged the Tribunal's decision by referring questions to the High Court.
Issues: 1. Whether the assessee was entitled to the benefit of section 80-I in respect of the humidifiers manufactured by it? 2. Whether the assessee was entitled to a deduction for education cess payable for the financial years 1966-67 to 1970-71? 3. Whether the assessee was entitled to a deduction for education cess in the year in which the bill was received or in the year in which the cess was assessed?
Ratio Decidendi: 1. The High Court held that the assessee was entitled to the benefit of section 80-I in respect of the humidifiers manufactured by it, as they were either textile machinery or textile accessories. 2. The High Court held that the assessee was entitled to a deduction for education cess payable for the financial years 1966-67 to 1970-71, as the liability to pay education cess existed under the Gujarat Education Cess Act, 1962, and the assessee had accepted the liability. 3. The High Court held that the assessee was entitled to a deduction for education cess in the year in which the bill was received, as a fiscal liability under a statute should be allowed as a deduction in the year in which the relevant transactions take place, even if the precise quantification of the liability comes later.
Final Decision: The High Court answered all the questions in favor of the assessee and against the Revenue.
JUDGMENT :
G.T. Nanavati, J.
The questions referred to this court by the Income-tax Appellate Tribunal under section 256(1) of the Income Tax Act, 1961, are as under :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the appellant was not entitled to the benefit under section 80-I of the Income Tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the contention of the appellant that the assessee-company does not manufacture textile machinery or accessories and, therefore, is not qualified for deduction or relief under section 80-I ?
3. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that Rs. 3,596 being education cess for the earlier years is not deductible ?"
2. The assessee manufactures humidifiers which are used in textile mills. During the assessment proceedings pertaining to the assessment year 1972-73, the assessee claimed a deduction under section 80-I in respect of humidifiers manufactured by it on the ground that they are textile machinery or textile accessories. The assessee, during the accounting year pertaining to the said assessment year, received a bill for Rs. 6,723 from the Ahmedabad Municipal Corporation being education cess payable by the assessee for the years 1966-67 to 1971-72. The assessee, therefore, made a provision for that amount and claimed deduction thereof.
3. The Income-tax Officer rejected both the claims. The claim for deduction under section 80-I was rejected on the ground that the humidifiers manufactured by the assessee cannot be said to be textile machinery or textile accessories. The claim for education cess was rejected on the ground that it did not pertain to the accounting year relevant to the assessment year 1972-73.
4. The Appellate Assistant Commissioner in appeal confirmed the view taken by the Income-tax Officer. The Appellate Assistant Commissioner, however, found that out of the amount of Rs. 6,723 claimed, Rs. 3,127 represented the liability for the assessment year 1972-73. Accordingly, the Income-tax Officer was directed to allow a sum of Rs. 3,127.
5. The Tribunal confirmed the order passed by the Appellate Assistant Commissioner as regards both the claims. The assessee, therefore, moved the Tribunal for referring the abovestated questions to this court.
6. Income-tax Reference No. 190 of 1980 (Industrial Machinery Manufacturers Pvt. Ltd. v. CIT (No. 1) [1993] 203 ITR 438 (Guj)), decided on February 1, 1993, this court, in the case of the assessee itself, has held that humidifiers manufactured by it are either textile machinery or textile accessories. For the reasons recorded in the said judgment, we hold that the assessee was entitled to the benefit of section 80-I in respect of the humidifiers manufactured by it.
7. The Tribunal has rejected the claim of the assessee for deduction of Rs. 3,596 being the amount of education cess payable for the financial years 1966-67 to 1970-71 on the ground that the assessee had not placed necessary facts for consideration of the authorities, and that it was not possible to know what was decided by the Gujarat High Court and the Supreme Court and what was the agreement between the assessee and the Municipal Corporation. Thus, it was not known under what circumstances the assessee had made a lower provision of Rs. 1,350 only for that period. Another reason given by the Tribunal is that it was not made clear by the assessee as to how the arrears of the earlier years were paid. The Tribunal gave one more reason for rejecting the claim and that is that as the assessee followed the mercantile system of accounting, it should have provided for this expenditure in the relevant year. Thus, the Tribunal rejected the claim on three grounds.
8. What is contended by learned counsel for the assessee is that payment of education cess is a statutory liability. Some provision was made earlier for meeting
