COMMISSIONER OF INCOME TAX vs. MS HP TOURISM DEVELOPMENT CORPORATION

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ITA/29/2012HC Himachal PradeshHPHC01014110201216 May 2013Author: HONOURABLE THE CHIEF JUSTICE A.M. KHANWILKAR,HONRABLE MR. JUSTICE R.B. MISRA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeals raised a substantial question of law concerning whether the provision for leave encashment is an unascertained liability to be added to book profit under Section 115JB. The Court noted that the Appellate Tribunal had overturned the Assessing Officer's finding, accepting the assessee's argument that the provision was for an ascertained and definite liability. The Tribunal's decision was based on the Supreme Court's ruling in Bharat Earth Movers vs. Commissioner of Income Tax. The High Court found that it was not open to them to overturn the Tribunal's finding of fact, especially when the issue was covered by the Apex Court's decision. The Apex Court's exposition stated that if a business liability has definitely arisen in the accounting year, deduction should be allowed even if quantified and discharged later, provided the incurring of the liability is certain and estimable with reasonable certainty. The High Court dismissed the appeals, stating the substantial question of law was already answered by the Apex Court.

What were the facts?

The appeals were filed by the Commissioner of Income Tax (the Revenue) against the order of the Appellate Tribunal. The Assessing Officer had disallowed the provision made by H.P. Tourism Development Corporation Ltd. (the assessee) for leave encashment, treating it as an unascertained liability to be added to the book profit under Section 115JB of the Income Tax Act, 1961. The Assessing Officer relied on the Calcutta High Court's decision in CIT vs. Bharat General & Textile Mills Ltd. The Appellate Tribunal overturned this finding, holding that the provision was for an ascertained and definite liability. The Tribunal relied on the Supreme Court's decision in Bharat Earth Movers vs. Commissioner of Income Tax to allow the assessee's claim and set aside the assessment order to the extent of disallowance.

What were the issues?

1. Whether the provision made by the assessee for leave encashment is not an ascertained liability and is thus liable to be added to the “book profit” under explanation 1 to Section 115JB of the Income Tax Act, 1961? (Question of law) Assessee's contentions: The provision for leave encashment was an ascertained and definite liability of the respondent towards leave allowance to be paid to the employees. The Appellate Tribunal accepted this plea. Revenue's contentions: The provision made by the assessee for leave encashment was an unascertained liability and therefore required to be disallowed and added to the book profit under Explanation 1 to Section 115JB of the Income Tax Act, 1961. The Assessing Officer relied on the decision of the Calcutta High Court in CIT vs. Bharat General & Textile Mills Ltd.

Which sections of the Income-tax Act were involved?

Section 115JB

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

ITA Nos.28 & 29 of 2012-B.

Decided on: May 16, 2013. ITA No.28 of 2012 & ITA No.29 of 2012:

Commissioner, Income Tax

...Appellant..

VERSUS

H.P.Tourism Development Corporation Ltd..

…Respondent. Coram The Hon’ble Mr. Justice A.M. Khanwilkar, Chief Justice. The Hon’ble Mr. Justice R.B.Misra, Judge.

Whether approved for reporting? Yes For the Appellant: Mr.Vinay Kuthiala, Sr.Advocate with Mrs.Vandana Kuthiala, Advocate.

For the Respondent: Mr.Vishal Mohan with Mr.Rattan Thakur, Advocates. ______________________________________________________________ Justice A.M. Khanwilkar, C.J. (Oral)

Heard counsel for the parties.

2.

These appeals have been filed by the Department on the assertion that it raises substantial question of law as follows:- “Whether the provision made by the assessee for leave encashment is not an ascertained liability and is thus liable to be added to the “book profit” under explanation 1 to Section 115 JB of the Income Tax Act, 1961?”

In both these appeals, the Assessing Officer, relying on the decision of the Calcutta High Court, in the case of CIT versus

…2…

Bharat General & Textile Mills Ltd.1 held that the provision made by the respondent in the books of account towards leave encashment of employees for the relevant period was unascertained liability and, therefore, was required to be disallowed. The Appellate Tribunal, however, over turned that finding recorded by the Assessing Officer. The Appellate Tribunal accepted the plea of the respondent that the provision made by the respondent in the concerned accounting year was in respect of “ascertained and definite liability” of the respondent towards leave allowance to be paid to the employees. Consistent with that finding, the Appellate Tribunal, relying on the decision of the Apex Court in the case of Bharat Earth Movers versus Commissioner of Income Tax2 allowed the appeal and was pleased to set aside the assessment order to the extent disallowing the amount towards leave allowance to be paid to the employees. The Appellate Tribunal allowed the claim of the respondent assessee. It is not open for this Court to over turn the finding of fact so recorded by the Appellate Tribunal and, moreso, when the issue is already covered by the decision of the Apex Court in the case of Bharat Earth Movers. It will be apposite to advert to the exposition of the Apex Court in the said decision, which reads thus:-

1 1986 157 ITR 158 (Cal) 2 (2000) 245 ITR 428

…3…

“The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.” (Emphasis supplied)

3.

The argument of the appellant that the finding recorded by the Tribunal is in-appropriate, cannot be the basis to admit these appeals and, moreso, when the substantial question, formulated by the Department, already stands answered by the decision of the Apex Court in Bharat Earth Movers (supra). Hence, dismissed.

(A.M. Khanwilkar)

Chief Justice

16th May, 2013. ( R.B.Misra ) (sl/s)

Judge

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