TMI Blog2009 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... its) Sur-tax Act, 1964 was not an admissible deduction in computing the total income for the year under reference? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the set-on liability under Section 15 of the Payment of Bonus Act, amounting to Rs.24,73,865/- was not allowable as a deduction in computing the total income of the assessee for the year under reference?' 2. The following reference has been made by the Tribunal for our consideration at the instance of the Revenue:- "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that weighted deduction u/s.35B is allowable in respect of interest paid on packing credit amounting to Rs.4,10,054/-.? 3. We may first deal with question No.(i) as referred at the instance of the assessee. The Tribunal held that every High Court has decided the matter against the assessee by taking a view that the sur-tax payment is not an allowable deduction under Section 37 of the Act. Reliance was placed in the judgment of the Andhra Pradesh High Court in the case of Vazir Sultan Tobacco Co. Ltd., 174 ITR 689. The issue is no lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ma Mills Ltd. v. Commissioner of Income-tax, A.P . 155 ITR 19. The learned Bench considering the provisions of Section 15 was pleased to hold that the statutory obligation for setting on is confined only to the four succeeding accounting years, whereafter the assessee is free to make such use of the amount, if any, remaining, as it thinks fit. Considering that the amount is required to be set apart with the assessee himself for a limited period to meet its bonus obligation in the succeeding account years, if necessary, and also because, after the expiry of the prescribed period, the said amount or the balance, if any, becomes a part and parcel of the general revenues of the assessee, it cannot be said that the money is diverted from the assessee under an overriding legal obligation. It considered the aspect that deduction claimed does not fall under Section 37 not being expenditure expanded by the assessee. It was then sought to be put under Section 28 on the reasoning that the amount is diverted under an overriding legal obligation. Considering the argument obligation, the Court observed that the amount does not reach the hands of the assessee at all. Even before it reaches the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 ITR 117. The Gauhati High Court proceeded to hold that the assessee cannot utilise the amount for business. On making deposit it is divested of the right to invest or utilise the amounts for business. The amounts have to be paid in future in the course of a cycle of four years. If utilised would be in contravention of the Act and punishable. On this basis it held that the amount deposited under the provisions of the Act and which cannot be utilised for the purposes of business amount to expenditure and allowable. Amongst the High Courts, therefore, there are two different views, though the majority of the High Courts have taken a view that it is not an allowable deduction. 9. On behalf of the applicant, however, learned Counsel drew our attention to the judgment of the Supreme Court in Bharat Earth Movers vs. Commissioner of Income-tax, 245 ITR 428, to contend that considering the ratio of that judgment, the allocable surplus would be an allowable deduction. A few facts may be noted. The company had floated a scheme for its employees for encashment of leave. The officers were entitled to earned leave calculated at 30 days per year. The staff (other than officers) were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1969) 73 ITR 53 (SC). The Company there had two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of service, the exact time of occurrence of the latter two events being not determinable with exactitude before hand. The Court then laid down principles which are referred to in the judgment. Based upon these principles the Court in Bharat Earth Movers (supra) held that the provision made by the appellant company for meeting the liability incurred by it and the leave encampment scheme is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability as the liability was certain and not contingent. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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