COMMISSIONER OF INCOME TAX vs. DAYAL B MISTRY

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ITR/138/1986HC GujaratGJHC24010762198609 July 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that it is not necessary for expenditure to be actually paid for a deduction to be allowed, unless the assessee is following the cash system of accounting. The judgment notes that it was not the case that the assessee was following the cash system. The Court emphasized that the provision of Section 80VV uses the term "incurred" and not "paid." The ITO's interpretation of "paid" was considered incorrect as there was no warrant for substituting it for "incurred" based on a plain construction of the provision. The High Court perused the impugned order and agreed with the view of the CIT(Appeals) and the Tribunal that the liability to pay Rs. 5,000/- had been incurred by the assessee in the relevant previous year. Therefore, the deduction ought to have been allowed. The question referred to the Court was answered in the affirmative, in favour of the assessee and against the revenue.

What were the facts?

The Commissioner of Income Tax (Revenue) has filed a reference application under Section 256(1) of the Income Tax Act, 1961, before the High Court of Gujarat at Ahmedabad. The appeal concerns Assessment Year(s) not explicitly stated. The dispute revolves around the allowance of a deduction of Rs. 5,000/- to the assessee, Dayal B Mistry, under Section 80VV of the Act. The Assessing Officer (ITO) disallowed the deduction because the amount was not actually paid during the relevant previous year, despite the assessee having incurred the liability. The CIT(Appeals) set aside the ITO's order and allowed the deduction. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal, upholding the CIT(Appeals)'s decision. The Revenue is now challenging the ITAT's order.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction of Rs. 5,000/- to the assessee under Section 80VV of the Income Tax Act, 1961, even though no payment was made by the assessee? (Question of law) Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Revenue contended that the deduction under Section 80VV should not have been allowed as the amount of Rs. 5,000/- was not actually paid by the assessee during the relevant previous year. The ITO disallowed the deduction on this basis. The Revenue's appeal to the ITAT was against the CIT(Appeals)'s order allowing the deduction.

Which sections of the Income-tax Act were involved?

Section 80VV,Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 138 of 1986

For Approval and Signature:

Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO

------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus DAYAL B MISTRY -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 138 of 1986 MR MANISH R BHATT for Petitioner No. 1 NOTICE SERVED for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE A.R.DAVE and MR.JUSTICE D.A.MEHTA

Date of decision: 09/07/2001

ORAL JUDGEMENT

(Per : MR.JUSTICE A.R.DAVE)

1.

At the instance of the revenue, the following question has been referred to this Court for its opinion under the provisions of Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), by the Income Tax Appellate Tribunal, Ahmedabad Bench `A'.

"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction of Rs.5,000/- to the assessee under Section 80 VV of the Income Tax Act, 1961 even though no payment was made by the assessee?"

2.

Learned advocate Shri Bharat Naik has appeared for the applicant, whereas nobody has appeared for the respondent-assessee, though the respondent has been served.

3.

Looking to the facts of the case it is clear that the assessee had incurred liability to the extent of Rs.5,000/-, but the said amount of Rs.5,000/- was not paid during the relevant previous year. The assessee had claimed deduction of the said amount under the provisions of Section 80 VV of the Act. The I.T.O did not allow the deduction because the amount had not been paid by the assessee to the concerned person. The assessee filed an appeal and in the appeal, the C.I.T (Appeals) set aside the order passed by the Assessing Officer and allowed the deduction. Being aggrieved by the order passed in appeal, the revenue had filed an appeal before the Tribunal. The appeal was dismissed.

4.

It is not necessary that the expenditure incurred by the assessee must be actually paid unless, the assessee is following the cash system of accounting. It is not the case here that the assessee was following cash system of accounting and, therefore, expenditure could not have been disallowed simply because actual payment was not made in the previous year. The Section provides "any expenditure incurred by him in the previous year". The concept of "paid" as read by the I.T.O. cannot be substituted for "incurred" as there is no warrant for doing so on a plain construction of the provision. We have perused the impugned order and we are in agreement with the view expressed that C.I.T. (Appeals) that liability to pay Rs.5,000/- had already been incurred by the assessee in the relevant previous year. In our opinion the C.I.T. (Appeals) and the Tribunal were absolutely right in coming to the conclusion that the deduction of the said amount ought to have been allowed.

5.

In the circumstances we answer the question in the affirmative i.e., in favour of the assessee and against the revenue.

The reference stands disposed of with no order as to costs.

9.7.

2001. (A.R. Dave, J.)

(D.A. Mehta, J.)

/phalguni/

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