C.I.T. BOMBAY. vs. MAHINDRA and MAHINDRA LTD.

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

INCOME INCOME INCOME TAX REFERENCE NO. 179 OF 1988. TAX REFERENCE NO. 179 OF 1988. TAX REFERENCE NO. 179 OF 1988.

The Commissioner of Income-Tax.,

Bombay City-IV, Bombay.

... Applicant.

V/s.

Mahindra & Mahindra Ltd.

Gateway Bldg, Apollo Bunder,

Bombay- 400 039.

... Respondent.

Ashok Kotangale for the applicant.

S.E.Dastur, senior counsel with B.V.Jhaveri

for the respondent.

CORAM CORAM CORAM : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ.

DATED DATED DATED : 30th September 2005. : 30th September 2005. : 30th September 2005.

JUDGMENT JUDGMENT JUDGMENT : : :

(Per V.C.Daga, J.)

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

By this reference under section 256 of the

Income-tax

Act, 1961 ("Act" for short), the

Income

Tax Appellate Tribunal has referred the following

questions of law for the opinion of this Court:

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

being

the custodian of the I.T.Act, was

right

law

holding

that

the

provisions

I.T.Rules 87 and 88

and

the

Board’s

notification

issued

exercise of the powers conferred CNR No : HCBM020001101988 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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u/s.36(1)(iv)

of the I.T.Act should

ignored as being conflict with the

provisions of sec. 36(1)(iv)?

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

was

right

law

allowing

deduction

u/s.37

the

I.T.Act

the

entire

initial

contribution

the

superannuation

fund

respect

liability

the last day

the

accounting year in respect of the entire

service of the employees of the company,

who

were for the first time admitted to

the benefits of the superannuation fund,

as representing the assessee’s liability

for the asstt. year 1977-78?

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

was

right in holding that the

donation

for

Rs.1,25,777/-

education

society

was allowable as an expenditure

wholly and exclusively for the purpose

of business? Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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Whether,

the

facts

and

the

circumstances

the

case,

the

expenditure

Rs.38,100/-

towards

supply

tea,

soft

drinks

entertainment expenditure u/s.37(2B) of

the I.T.Act, 1961?

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

was

right

holding

that

the

road

constructed

by the company

constituted

‘plant’

within the meaning of sec.43(3)

of the I.T.Act, 1961, and is eligible

for depreciation allowance?

Whether

the

facts

and

the

circumstances

of the case, the interest

u/s.

216 could be levied on the advance

tax

payable

itself

was

not

underestimated being the amount payable

in instalments was a loss?

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

was

right

in law in holding

that

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full

liability

on actuarial

basis

account of special provision represented

accrued

liability

and

was

admissible

deduction

in computing

the

profits of the assessee company for

asstt. year 1977-78?

Whether,

the

facts

and

the

circumstances

of the case, the Tribunal

was

right in allowing legal expenses of

Rs.8,000/-

and foreign travel

expenses

Rs.47,754/-

in connection with

the

merger

of the international Tractor Co.

India Ltd.

as a revenue expenditure

in computing the total income of the

company for assessment year 1977-78?

Question Question Question Nos.1 and 2 : Nos.1 and 2 : Nos.1 and 2 :

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

Learned counsel for the parties agreed that

far as question Nos.1 and 2 are concerned,

they

are

covered

by the decision of this Court

the

case of C.I.T.

Mahindra Sintered Products Ltd. C.I.T.

Mahindra Sintered Products Ltd. C.I.T.

Mahindra Sintered Products Ltd.,

(2001)

252 ITR 576 and Mahindra & Mahindra Ltd.

C.I.T.,

(2003)

261

ITR

501;

wherein

similar

questions

did arise and relying on the judgment

of Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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the

Apex

Court in the case of C.I.T.

Sirpur C.I.T.

Sirpur C.I.T.

Sirpur

Paper Paper Paper Mills

Mills

Mills, (1999) 237 ITR 41;

this Court has held

that

the

notification

issued by the

CBDT

cannot

curtail

the scope of deduction granted by the

Act.

this

view of the matter, question Nos.1

and

both

have

be answered favour of and

against

the

Revenue.

Accordingly, question

Nos.1

and 2 stand answered in affirmative i.e. in favour

of assessee and against the revenue.

Question Question Question No.3 : No.3 : No.3 :

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

Learned counsel for the parties also agreed

that

this question is also covered by the

judgment

this

Court

the

case itself

reported

in (2003) 261 ITR 501 (Mahindra & Mahindra Mahindra & Mahindra Mahindra & Mahindra

Ltd. Ltd. Ltd.

C.I.T.

C.I.T.

C.I.T.).

Accordingly, question No.3

has

to be answered in the affirmative i.e.

in favour of

the assessee and against the revenue. We answer the

said question accordingly.

Question Question Question No.4 : No.4 : No.4 :

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

So far as question No.4 is concerned, the involved

only

Rs.38,100/-.

Learned

counsel

for

the

revenue, at

whose

instance

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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question

has been referred, does not press question

considering the negligible amount involved. The

said question is, thus, returned unanswered.

Question Question Question No.5 : No.5 : No.5 :

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

Learned counsel for the assessee fairly

submitted

that

this Court in assessee’s

own

case

reported

in (2003) 261 ITR 501 (Mahindra & Mahindra Mahindra & Mahindra Mahindra & Mahindra

Ltd. Ltd. Ltd.

C.I.T.

C.I.T.

C.I.T.) had occasion to answer the similar

question;

wherein

this

Court, relying

upon

the

judgment of the Apex Court in the case of C.I.T.

v. C.I.T.

v. C.I.T.

Gwalior Gwalior Gwalior Rayon

Rayon

Rayon Silk Manufacturing Co.Ltd.

Silk Manufacturing Co.Ltd.

Silk Manufacturing Co.Ltd., (1992) 196

ITR

149, has held that the road constructed

within

the

factory premises of the company is not a

plant

but

is a building.

In this view of the matter

the

question No.5 herein is answered in negative i.e.

in favour of Revenue and against the Assessee.

Question Question Question No.6 No.6 No.6

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

So far as question No.6 is concerned, it

pertains

to interest under section 216 of the

Act.

The

Income

Tax

Officer ("I.T.O." for

short)

had

levied

interest under section 216 without recording

any finding that the assessee had underestimated its Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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income

while

filing estimate under section 212

the

Act.

Appeal was filed before C.I.T.(A).

The

said appellate authority in its order observed as

under:

".....

Sec.216 provides that interest under

that

section

is chargeable only

when

the

advance

tax payable has been underestimated

and

the

assessee has thereby

reduced

the payable

either

the

two

instalments.

The Income Tax Officer has not

given

any

finding that the

appellant

had

deliberately

underestimated

its income

also

the advance tax payable thereon in the

first

two instalments.

No finding has been

given

the

Income-tax Officer

this

effect.

Since no finding about any default

committed by the assessee in this regard has

been given by the ITO, I would hold that the

interest

has

not

been

correctly

levied

following the decision of the Andhra Pradesh

High

Court in the case of Additional CIT V.

Vazir

Sultan

Tobacco Co.

Ltd.

(122

ITR

251).

the

result the last

ground

appeal is allowed."

It is not in dispute that I.T.O.

did not record any

finding

that

there was any wilful default

the

part

the assessee.

In second appeal

from

the

order

C.I.T.(A),

the tribunal was

pleased

uphold the order of C.I.T.(A); whereunder levy of

interest under section 216 was set aside.

Learned counsel appearing for the Revenue

tried to contend that the finding of the Tribunal is

not

in accordance with law.

According to him,

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authorities

below

could not have relied

upon

the

judgment

the Andhra Pradesh High Court

the

case

Addl.C.I.T.

Vazir

Sultan

Tobacco Addl.C.I.T.

Vazir

Sultan

Tobacco Addl.C.I.T.

Vazir

Sultan

Tobacco

Co.Ltd. Co.Ltd. Co.Ltd.,

(1980) 122 ITR 251 in view of the judgment

this Court in the case of Oudh Sugar Mills

Ltd. Oudh Sugar Mills

Ltd. Oudh Sugar Mills

Ltd.

v.v.v.

C.I.T.

C.I.T.

C.I.T., (1994) 210 ITR 692;

wherein this Court

did

not

accept the correctness of the judgment

the

case of Vazir Sultan Vazir Sultan Vazir Sultan (supra).

He submits

that

the judgment in the case of Vazir Sultan Vazir Sultan Vazir Sultan (supra) was

also

not

approved by the Full Bench of the

Andhra

Pradesh High Court in the case of C.I.T. v. C.I.T. v. C.I.T. v.

Rayalaseema Rayalaseema Rayalaseema Mills Ltd. Mills Ltd. Mills Ltd., (1997) 228 ITR 477.

Per contra, Mr.Dastur, senior counsel

appearing for the respondent - assessee submits that

far

as the judgment of Vazir Sultan Vazir Sultan Vazir Sultan (supra)

concerned, the said judgment, to the extent it holds

that

section

216

requires that the

I.T.O.

must

record a finding, at the time of regular assessment;

that

the under

sub-section

(1)

sub-section

(2)

or sub-section (3) or

sub-section

(3A)

of section 211, has underestimated the advance

tax

payable

by him and thereby reduced the payable

either

of the first

two

instalments,

still

holds

good.

submits

that

far

necessity

of recording of finding by the I.T.O.

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concerned,

none

of the High Courts have taken

any

view contrary to the view taken in the case of Vazir Vazir Vazir

Sultan Sultan Sultan

(supra)

on this count.

He submits that

the

case

hand, no finding

required

under

section

216 has been recorded by the I.T.O.

in the

assessment

order dated 5th September, 1980.

Based

this he submits that no fault can be found

with

the finding recorded by the Tribunal in this behalf.

Accordingly, he prayed that this question be

answered in favour of the assessee.

In rejoinder, when Mr.Kotangale, learned

counsel

for the Revenue called upon to react to the

above

submission

made by Mr.Dastur, he

could

not

point

out

any

adverse judgment of any

Court

nor

could he demolish the submission advanced by

Mr.Dastur.

10.

Mere reading of section 216 of the Act

brings

out the necessity of recording a finding

the I.T.O.

as canvassed by Mr.Dastur.

In this view

the matter, no fault can be found with the

view

taken

the

tribunal.

Thus,

question

No.6

answered in favour of the assessee and against the

Revenue. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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Question Question Question No.7 No.7 No.7

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

11.

So far as question No.7 is concerned, the

facts found by the Tribunal are as under:

On 20th September, 1975 the company issued

notice terminating the services of certain

officers effective from 1st January, 1976.

In effect the services of 75 officers were

terminated from this date which falls in the

accounting year relevant to the assessment

year 1977-78. The company had claimed that

the actuarially quantified liability of

Rs.30,57,740/- in respect of special pension

should be allowed in the assessment year

1976-77. The I.T.O. disallowed this claim

on the ground that the liability would have

to be considered in the year in which

retirement took place. In view of this

decision, of the I.T.O. and having regard

to the uncertainty regarding the outcome of

appeal for that year, the appellant had

staked the claim for the same amount in the

year 1977-78 the year in which the

retirement has taken place. During the year

ended 31st October 1976, the company paid

Rs.5,44,140/- which was the actual amount

paid. Shri Khare submitted that when the

accounts are maintained on a mercantile

basis, and when the actuarial valuation of

existing liability was produced before the

ITO, such liability should have been allowed

and the factum of actual payment was

irrelevant....."

12.

The tribunal relying upon the decision of

the

Calcutta

High Court in the case of C.I.T.

v. C.I.T.

v. C.I.T.

National National National

Insurance Co.

Insurance Co.

Insurance Co., (1981) 127 ITR 54 held that

there

was

a definite liability to

the

pensioners

which had already arisen as such assessee was

entitled to claim deduction on this account. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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13.

The tribunal in the case on hand found that

75 officers had already retired on 1st January, 1976

whereas

services of 8 more officers were terminated

during

the

year

ended 31st

October,

1976.

The

tribunal,

thus, found that the claim for

deduction

claimed

on the basis of accrual of liability

could

not

rejected

merely

on the

ground

that

the did not pay the liability or deferred

its

payment

during

the

year

under

reference.

The

tribunal

having

noticed

mercantile

method

accounting followed by the respondent-assessee under

which, if a business liability has definitely arisen

the

accounting

year,

deduction

could

claimed.

The provision in the books of accounts in

respect

special

pension had been made

the

basis

of liability which was accrued and quantified

actuarially.

The

tribunal was, thus,

pleased

allow

deductions of liabilities in respect of staff

retired

1st

January,

1976

amounting

Rs.30,57,740/-,

and in respect of 8 officers

whose

services were terminated during the accounting year,

the liability of which was in the sum of

Rs.8,52,913/-. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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14.

Learned counsel for the revenue submitted

that

the has not been actually

paid

and,

therefore,

the respondent-assessee was not entitled

to claim deduction on actuarial basis unless the

liability was actually discharged.

15.

Per contra, Mr.Dastur tried to support the

findings

recorded

by the tribunal.

reiterated

the submissions which were made before the tribunal,

reproduction

which is not necessary

since

the

same are to be found in the order of the authorities

below.

Mr.Dastur relying upon the decision the

the

Calcutta

High Court in National Insurance

Co. National Insurance

Co. National Insurance

Co.

(supra) submitted that since the persons, in respect

whom provision of pension was made, had

already

retired, there was an existing liability in terms of

their

employment

such existing

liability

was

actuarially

computed and the provision for the same

was made as such the amount of deduction represented

an accrued liability and was an admissible deduction

in computing the profits of the assessee for the

assessment year 1977-78.

16.

Having heard rival parties, the submissions

made

by Mr.Dastur deserve acceptance.

No fault can

found with the view taken by the tribunal.

The Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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judgment

in National Insurance Co. National Insurance Co. National Insurance Co.

(supra)

relied

upon

Mr.Dastur is based on the earlier view

the

Calcutta

High Court in the case of C.I.T.

v. C.I.T.

v. C.I.T.

Easter Easter Easter

Spinning

Mills

Ltd.

Spinning

Mills

Ltd.

Spinning

Mills

Ltd., (1980) 126

ITR

686,

which

in turn was based on the earlier judgments of

the

Apex Court amongst others in the case of Indian Indian Indian

Molasses Molasses Molasses Co.

Co.

Co.

(P) Ltd.

C.I.T.

(P) Ltd.

C.I.T.

(P) Ltd.

C.I.T., (1959) 37 ITR 66

and

Standard

Mills Co.Ltd.

C.W.T.

(1967)

ITR

470;

wherein more or less similar issues

were

involved.

The

High

Court ruled

that

prudent

businessman

is always bound to make a fair estimate

of his liability under the Act from year to year and

entitled

to make provision for such

liability.

While

considering the liability arising on

account

payment

of gratuity the High Court

ruled

that

such

liability

is always in the form

deferred

payment

of wages of the employees concerned as such

the

said deduction can be allowed on the

actuarial

valuation.

Respectfully

agreeing with

the

above

view,

we do not find any fault with the view

taken

by the tribunal.

We, in the result, answer question

No.7 in the affirmative i.e. in favour of the

assessee and against the revenue. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14

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Question Question Question No.8 No.8 No.8

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

17.

So far as question No.8 is concerned, it

pertains

legal expenses incurred in the sum

Rs.8,000/-

and on account of foreign travel in

the

sum

of Rs.47,754/- in connection with the merger of with

International Tractor Co.

India

Ltd.

The

expenses in question were held to be

revenue

nature.

The

issue

raised

squarely

covered

the judgment of the Apex Court

the

case

C.I.T.

Bombay Dyeing and

Mfg.

Co. C.I.T.

Bombay Dyeing and

Mfg.

Co. C.I.T.

Bombay Dyeing and

Mfg.

Co.

Ltd. Ltd. Ltd.,

(1996)

219

ITR 521.

In that

view

the

matter, the said question requires to be answered in

favour of the assessee and against the Revenue and

stands answered accordingly.

18.

Reference stands disposed of in terms of the

above order with no order as to costs.

(A.S.AGUIAR, (A.S.AGUIAR, (A.S.AGUIAR, J.) J.) J.)

(V.C.DAGA, (V.C.DAGA, (V.C.DAGA, J.) J.) J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:31:14 Powered by TCPDF (www.tcpdf.org)