COMMISSIONER OF INCOME-TAX VS ALIMBEG SALIMBHAI, 1998 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 1434 (1996)

Income-tax---

----Business expenditure---Accounting---Mercantile system of accounting-- Provision made for statutory liability under Bidi and Cigar Workers' Act for assessment year 1976-77---Deductible---Indian Income Tax Act, 1961.

The assessee claimed deduction in the assessment year 1976-77 on account of holiday wages and leave with wages under sections 21, 26 and 27 of the Bidi and Cigar Workers' (Conditions of Employment) Act, 1966 The Income-tax Officer did not actually verify the computation of the claim made by the assessee. However, on scrutiny he found that no actual payment was made. According to him, it was simply a provision made by creating a reserve out of profits. He held that it was not an existing liability but only a contingent liability. He disallowed the claim but the Tribunal allowed it. On a reference:

Held, that the Tribunal was justified in holding that the liability of :he assessee for the amount of Rs.2,0? 722 was an ascertained liability under section 26 of the Bidi and Cigar Workers (Conditions of Employment) Act, 1966, and that the said amount was deductible in computing the income of the assessee.

[The Court observed that if it was found that the statutory liability was not disbursed to the workers but was invested in business it would be open to the Department to proceed under the relevant provisions of the Income-tax Act].

CIT (Addl.) v. Kale Khan Mohammad Hanif (1978) 114 ITR 812 (MP); CIT v. Alim Beg Salim Bhai (1987) 163 ITR 767 (MP) and Kalekhan Muhammad Hanif v. CIT (1987) 163 ITR 769 (MP) fol.

Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363; 28 STC 672 (SC) and Muhammad Hanif v. CIT (1997) 223 ITR 317 (MP) ref.

V. K. Tankha for the Commissioner.

B. L. Nema for the Assessee.

JUDGMENT

Earlier an application under section 256(2) of the Income-tax Act, 1961, was filed by the Revenue. for calling a reference from the Tribunal and m pursuance of an order, dated September 22, 1989, in M. C. C. No. 446 of 1986 (see (1990) 181 ITR 362), the Tribunal has stated the case and referred the following question for answer by this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the liability of the assessee for the amount of Rs. 2,03,722 was an ascertained liability under section 26 of the Bidi and Cigar Workers (Conditions .of Employment) Act, 1966, and the said amount was deductible in computing the income of the assessee?"

The assessee is a partnership firm engaged in manufacture and sale of bidis. The year of assessment involved is 1976-77, the previous year ending on Diwali of 1975. The assessee claimed deduction of Rs.2,03,722 on account of holiday wages and leave with wages under sections 21, 26 and 27 of the Bidi and Cigar Workers (Conditions of Employment) Act, 1966. The Income-tax Officer did not actually verify the computation of the claim made by the assessee. However, on scrutiny he found that no actual payment was made. According to him, it was simply a provision made by creating a reserve out of profits. He held that it was not an existing liability but only a contingent liability. The Income-tax Officer, thus, made disallowance of the claim. The assessee went in appeal before the Commissioner of Income-tax (Appeals), who following the earlier orders of the Tribunal allowed the claim of the assessee. The Revenue came in appeal before the Tribunal and the Tribunal following the judgment of this Court in Kalekhan Muhammad Hanif's case (1987) 163 ITR 769 (MP) affirmed the claim of the assessee and allowed deductions in terms of the statutory liability. Thereafter the Department moved this Court for calling for a reference and this Court directed to make a reference and, accordingly, the aforesaid question has been sent by the Tribunal for answer by this Court. Suffice to say that a similar question came up before this Court in Kale Khan. Muhammad Hanif's case (1987) 163 ITR 769 and this Court answered the question in favour of the assessee and against the Revenue. Likewise, in the case of the same party in another case (CIT v. Alim Beg Salim Bhai (1987) 163 ITR 767), the question has been answered in favour of the assessee and against the Revenue. It has been observed thus:

"The fact that provision has been made in the accounts of the assessee maintained according to the mercantile system, to provide for the liability, it has already incurred during the relevant year under section 21 of the Bidi and Cigar Workers (Conditions of Employment) Act, 1966, is beyond controversy. The case does not involve any dispute about the quantification of this liability. The only question, therefore, is whether this statutory liability having been incurred by the assessee in the manner stated and provision having been made in the assessee's accounts maintained according to the mercantile system, the same was rightly allowed as a permissible deduction by the Tribunal. We find that the matter is concluded bythe decisions of this Court particularly in Addl. CIT v. Kale Khan Mohammad Hanif (1978) 114 ITR 812 and Kalekhan Muhammed Hanif v. CIT (1987) 163 ITR 769 (MP), wherein similar deductions were allowed on the same principle. Since the point is settled by the decisions of this Court following the principle laid down by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363, the question now is merely of an academic character and no useful purpose would be served by requiring the reference to be made for deciding the point concluded in this manner."

In view of the fact that between the same parties on a similar question reference was sought by the Revenue and the same was rejected for the aforesaid reason, it is not proper for this Court to take a different view. Before parting, we may mention that in another case of (Muhammad Hanif v. CIT (1997) 223 ITR 317-M. C. C. No.270 of 1987), which came before us under the wealth-tax reference, we have found that some of the parties have utilized the amount for the benefit of their business. Therefore, it would be open to the assessing authorities to probe into the matter and if it is found that this amount kept reserved under the statutory liability under the Madhya Pradesh Beedi and Cigar Workers (Conditions of Employment) Act, 1966, has not been disbursed to the workers towards their wages and the same is found to have been invested in the business, then it would be open to the authorities to proceed under the relevant provisions of law for assessment of the liabilities. However, so far as the present case is concerned, we answer the reference in favour of the assessee and against the Revenue.

M.B.A/1404/FC Order accordingly.