COMMISSIONER OF INCOME TAX vs. R.B RODDS & CO LTD.

ITR/298/1983HC GujaratGJHC24011766198324 January 1997Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE R.BALIA3 pages

AI SummaryRemanded

What were the facts?

The Commissioner of Income Tax (Revenue) filed reference applications before the Income Tax Appellate Tribunal (ITAT) concerning assessment years 1977-78, 1978-79, and 1979-80. The ITAT referred a question of law to the High Court regarding the allowability of a bonus liability deduction claimed by the assessee, R.B. Rodds & Co. Ltd. The assessee, a company maintaining accounts on a mercantile basis, claimed deductions for bonus payments under the Payment of Bonus Amendment Act, which came into force on September 3, 1977. The Revenue contended that since the liability arose after the close of the accounting year ending March 31, 1977, it was not an allowable deduction for that year, even for an assessee on the mercantile system. The ITAT had ruled in favour of the assessee.

What did the High Court hold?

The High Court declined to answer the question referred by the Revenue. The Court observed that the learned counsel for the assessee stated that the dispute was only about the year of allowability and that the tax rates were the same for the relevant periods. Therefore, whether the deduction was granted in the years claimed by the assessee or in succeeding years as contended by the department, the total tax liability would not be altered. The Revenue's counsel also did not dispute this fact. Consequently, the High Court considered the question to be of academic importance and, following a similar decision in Rohit Mills Limited vs. CIT (219 ITR 228), declined to answer the reference. The Court also addressed a second question regarding accrued gratuity liability, which was answered in favour of the Revenue based on the Supreme Court decision in Sajjan Mills Limited vs. CIT (166 ITR 585).

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the liability of Rs.6,64,068/- for AY 1977-78, Rs.7,11,199/- for AY 1978-79, and Rs.8,50,000/- for AY 1979-80 for payment of bonus under the Payment of Bonus Act, 1965 (as amended), was an allowable deduction under the Income-tax Act, 1961? Assessee's contention: The assessee argued that the dispute was only about the year of allowability, not eligibility. Since the tax rates were the same, the timing of the deduction would not affect the total tax liability. If disallowed in the claimed years, it would be allowed in subsequent years, and assessments could be adjusted to avoid double disallowance. Revenue's contention: The Revenue was of the opinion that since the liability came into existence after the close of the previous year, it could not be an allowable deduction even for an assessee following the mercantile system of accounting for AY 1977-78. The High Court noted that the Revenue did not dispute that the decision would not alter the tax liability position.

Which sections of the Income-tax Act were involved?

Section 1965 (Payment of Bonus Act), Income-tax Act, 1961

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 298 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE R.BALIA. ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

To be referred to the Reporter or not?

Whether Their Lordships wish to see the fair copy of the judgement?

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

Whether it is to be circulated to the Civil Judge?

The order continues below.

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