Advocates:
PRAMOD DAYAL

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CASE NO.:

Appeal (civil) 3761 of 2007

PETITIONER:

J. K. Industries Ltd. & Anr

RESPONDENT:

Union of India & Ors

DATE OF JUDGMENT: 19/11/2007

BENCH:

S.H. Kapadia & B. Sudershan Reddy

JUDGMENT:

J U D G M E N T

With

Civil Appeal Nos.3478/2007, 3479/2007, 3480/2007 and 3482/2007.

KAPADIA, J.

1. A short question which arises for determination in this

batch of civil appeals is :

\023Whether Accounting Standard 22 (AS 22) entitled

\023accounting for taxes on income\024 insofar as it

relates to deferred taxation is inconsistent with and

ultra vires the provisions of the Companies Act,

1956 (the Companies Act), the Income-tax Act, 1961

(I.T. Act) and the Constitution of India?\024

2. M/s. J.K. Industries Ltd. is a public limited company. It

was incorporated in 1951. It carries on the business of

manufacture and sale of automotive tyres, tubes, sugar and

agrigenetics. It has a registered office at Calcutta. It seeks to

challenge AS 22 issued by Institute of Chartered Accountants of

India (for short, \023Institute\024) which has been made mandatory for

all companies listed in Stock Exchanges in India in preparation

of their accounts for the financial year 2001-02 onwards.

3. On 7.12.06 the Central Government prescribed AS 22 under

Section 211 (3C) of the Companies Act by the Companies (AS)

Rules 2006. Before that date, AS 22, when issued in 2001, was

challenged in writ petitions filed before Madras, Karnataka,

Calcutta and Gujarat High Courts. On transfer petitions, under

Section 139A of the Constitution, filed by the Institute, this Court

vide order dated 17.2.03 was pleased to transfer the writ

petitions filed in various High Courts to the Calcutta High Court.

Meaning and purpose of AS:

4. In its origin, Accounting Standard is a policy statement or

document framed by Institute. Accounting Standards

establishes rules relating to recognition, measurement and

disclosures thereby ensuring that all enterprises that follow them

are comparable and that their financial statements are true, fair

and transparent. Accounting Standards (\023A.S.\024 for short) are

based on a number of accounting principles. They seek to arrive

at true accounting income. One such principle is the matching

principle. The other is fair value principle. The aim of the

Institute is to go for paradigm shift from matching to fair value

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principle.

5. Today the revised Accounting Standards seeks to arrive at

true accounting income. In the age of globalization the attempt

is to reconcile the accounts of Indian companies with their joint

venture partners abroad. The aim is to harmonise Indian

Accounting Standards with International Accounting Standards.

With the object of bridging gap between IAS and IFRS, the

Institute formulated new A.S. and introduced new concepts, e.g.,

Deferred Tax Accounting (AS 22 impugned herein), Segment

Reporting (AS 17) etc.. However, as a matter of prudence and

necessary adjustment, to arrive at real income, Accounting

Standards require provision to be made for liabilities payable in

future, provision to be made for contingencies, provision to be

made for diminution, provision to reflect impairment and so on

which have the effect of reducing incomes and were, therefore,

not readily accepted by some enterprises and tax authorities.

6. The core of Accountancy is Book-keeping. The rules of

Book-keeping are clear. For example, the value of a fixed asset

mentioned in a Balance Sheet is based on cost which may involve

subjective estimation of the amount to be apportioned. Similarly,

the quantum of depreciation is again an estimate, which can vary

depending on the persons preparing the accounts as to when and

at what stage he wants to record the depreciation. Accounting

Standards are an attempt to overcome some of these defi