COMMISSIONER OF INCOME-TAX VS JIAJEE RAO COTTON MILLS LTD.
1999 P T D 2452
[227 I T R 860]
[Calcutta High Court (India)]
Before Visheshwar Nath Khare, C. J. and Vinod Kumar Gupta, J
COMMISSIONER OF INCOME-TAX
Versus
JIAJEE RAO COTTON MILLS LTD.
I. T. R..No.29 of 1992, decided on 03/09/1996.
(a) Income-tax---
----Business expenditure---Provision for sales tax and purchase tax---Raw materials purchased against declaration forms but used for non manufacturing purposes---Liability to purchase tax arises---Deduction permissible---Indian Income Tax Act, 1961, S.37.
(b) Income-tax--
----,Depreciation---Actual cost---Machinery---Sum paid towards royalty, engineering fee, licence fee, etc.---To be included in actual cost---Indian Income Tax Act, 1961, Ss.32 & 43(1).
(c) Income-tax---
----Profits chargeable to tax---Unpaid wages and bonus of earlier year-- Written back to profit and loss account in assessment year---Taxable---Indian Income Tax Act, 1961, SAL
Where the Income-tax Officer recorded a categorical finding that the raw material purchased by the assessee against sales tax declaration forms was used for non-manufacturing purposes and admittedly there would be liability of the assessee to pay the purchase tax:
Held, that the assessee was entitled to deduction of the provision for purchase tax and sales tax.
Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363 and (1971) 28 STC 672 (SC) applied.
Held also, (i) that unpaid wages and bonus of an earlier year written back into the profit and loss account for the assessment year in question could not be deleted;
CIT v. General Industrial Society Ltd. (1994) 207 ITR 169 (Cal.) and CIT v. Eastern Spinning Mills and Industries Ltd. (1994) 207 ITR 951 (Cal.) fol.
(ii) that for purpose of allowing depreciation, the payment of 1,75,000 dollars to the U.S.A. party towards royalty, engineering fee, technical fee, should be taken as part of the cost of machinery in respect of the vertical lime kiln. ,
Sunil Mitra, R.C. Prosad and Sunil Mukherjee for the Commissioner.
Bajoria, J.P. Kaitan and A.K. Dey for the Assessee.
JUDGMENT
VISHESHWAR NATH KHARE, C J.---This reference under . section 256(1) of the Income-tax Act is at the instance of the Revenue. The Tribunal has referred the following questions of law for the opinion of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the deletion of the addition of Rs.1,56,195 being provision for purchase tax liability?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the deletion of Rs.15,444 on purchase tax liability and Rs. 47,624 as provision, for sales tax?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the deletion of Rs.1,08,281 representing unpaid wages and bonus for the accounting year 1974 75 written back to the profit and loss account for the relevant assessment year?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of allowing depreciation, the payment of 1,75,000 dollars to the Union Carbide International Co. Ltd. of U.S.A. should be taken as part of the cost of machinery in respect of vertical lime kiln?"
The assessee, Jiajee Rao Cotton Mills Ltd., is a resident company and the assessment year involved is 1979-80 for the previous year ended on March 31, 1979. The assessee-company carried on the business of manufacture of cotton textiles and synthetic fabrics. Besides; it has a chemical division styled as Saurashtra Chemicals at Porbandar in the State of Gujarat for the manufacture of soda ash, caustic soda and sodium bicarbonate. During the course of the assessment proceedings, the Income tax Officer found that the assessee-company had provided a sum of ics.1,56,193 for purchase tax liability on account of Form No. "C" and Form No. 19 and Form No. "C" goods utilised for non-manufacturing purposes. The Revenue contended that since no demand was raised by the tax authority during the accounting period, as such, such a provision for tax liability was not permissible. It may be noticed that the assessee purchased goods without actual payment of taxes on the assumption that taxes were not payable on such purchase. The Income-tax Officer added this amount to the total income of the assessee only on the ground that the demand was neither raised nor quantified during the relevant period nor it was paid. The Income tax Officer was of the further opinion that the goods were purchased by the assessee against the declaration forms that taxes are not payable on such purchases and further the assessee did not pay or write back such amount in the subsequent, assessment years and as such there was no tax liability on the assessee and as such the assessee cannot be allowed to claim deduction. Under such circumstances, the Assessing Officer disallowed the deduction as claimed by the assessee.
On appeal the view taken by the Assessing Officer was set aside and the claim of deduction by the assessee was upheld. The Revenue took the matter to the Income-tax Tribunal in appeal but the Tribunal rejected the appeal. The Revenue thereafter got the matter referred to this Court for opinion and that is how the matter has come up before us.
Since questions Nos. l and 2 are overlapping, we take up and answer these two questions together. On a perusal of the order of the Tribunal as well as the Commissioner of Income-tax it shows that the claim of the assessee for deduction was upheld on the ground that this matter is covered by a decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363. Learned counsel appearing for the Revenue, however, urged that the decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. (1971) 82 ITR 363, is not applicable in the present case as there was no liability on the part of the assessee to pay the purchase tax for the relevant assessment year. However, learned counsel for the Revenue does not dispute that if there was any liability to pay the tax, the assessee is entitled to claim deduction. After we heard the matter we do not find any merit in the argument of learned counsel for the Revenue in view of the categorical finding of fact recorded by the Income-tax Officer that the raw materials purchased by the assessee against the declaration form were used for non-manufacturing purposes. If the raw material which was purchased against the declaration form was utilised for non-manufacturing purposes it is not disputed that there is liability of the assessee to pay the purchase tax. We are, therefore, of the opinion that the decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. (1971) 82 ITR 363, is squarely applicable in the present case. We, therefore, answer these two questions in the affirmative and against the Revenue.
So far as question No.3 is concerned, . it is conceded that this question stands concluded by the decision in the case of CIT v. General Industrial Society Ltd. (1994) 207 ITR 169 (Cal.) and in the case of CIT v. Eastern Spinning Mills and Industries Ltd. (1994) 207 ITR 951 (Cal.). We are in respectful agreement with the view taken by this Court in the two cases referred to above. In view of these two decisions, we answer the question in the negative and in favour of the Revenue.
So far as question No.4 is concerned, it is admitted between the parties that this question stands concluded by a decision in the case of CIT v. Jiajee Rao Cotton Mills Ltd. (Income-tax Reference No.44 of 1992), decided by this Court on August 3, 1993. In this case, this Court has followed the earlier decisions of this Court in the case of Income-tax Reference No. 19 of 1991, and Income-tax Reference No. 126 of 1991, decided by this Court on February 19, 1992. We have perused the judgment and we are in respectful agreement with the decisions taken by this Court.
For the aforesaid reasons, we answer the question in the affirmative and against the Revenue. Let our opinion and the answers to the questions referred to us be remitted to the Tribunal expeditiously. In view of the peculiar nature, of the case there shall be no order as to costs.
VINOD KUMAR GUPTA, J.---I agree.
M. B. A. /2065/FCReference answered.