TMI Blog1995 (3) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... ration plant at Chavara and by co-ordinating the efforts of the assessee for technical upgradation and diversification in collaboration with Tioxide Group Ltd., U.K. The Government also assisted the assessee by intervening and settling the issues with the local people for laying sub-marine pipes for effluent disposal, and for sponsoring of the unit for the manufacture of products utilising the effluents collected from the company. Further, the Government assisted the assessee in settling labour disputes and in maintaining good industrial relations. It is in view of such services that the assessee was asked to pay service charges to the Government at varying rates per tonne of Titanium Dioxide in the past and such payments were not disallowed. However, for the impugned assessment year, the payment was disallowed as in the view of the Assessing Officer the services rendered by the Government are not special services, but are rendered in its capacity as the Government of the State for promotion of industrial development. He further held that the so-called services stated to have been rendered by the Government represented nothing but part of the normal day-to-day functioning and statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had not furnished evidence to show under what circumstances the levy of service charges was made applicable to the assessee-company and that there was no exchange of correspondence between the Government and the assessee before the levy of service charges and that no formal discussion took place in the Board's meeting regarding the Government order and that the assessee has simply started paying service charges on the basis of the Government order. Since the Government is a major shareholder, the assessee is not bound to make the payment on the basis of the order of the Government. The mere fact that the Government had demanded and the assessee had paid service charges, will not clothe it with the nature of an expenditure wholly and exclusively laid out for the purpose of the business. Then he noticed the details of services listed by the Government in its letter No. 17238/H-3/94/ID dated 21-6-1994 and opined that the Government was only discharging its functions as a Government and there was nothing special meant for the assessee or in connection with its activities. The levy was not collected from all public undertakings but only from a few undertakings which were making profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nium Dioxide with effect from 1-4-1990 as per letter No. 47291/H3/91/ID dated 7-12-1991. The Dy. Commissioner of Income-tax (Assessment), Special Range, Trivendrum, had addressed a letter dated 22-12-1993 to the Secretary, Industries (H) Department, Government of Kerala, Secretariat, Trivendrum seeking clarifications regarding the levy of service charges on the assessee and KSIPTC. In response to this letter, the Secretary to Government, Industries (H) Department, Trivendrum, has replied by his letter dated 21-6-1994 as follows :--- " From The Secretary to Government To The Deputy Commissioner of Income-tax (Assessment), Special Range, Kowdiar, Thiruvananthapuram. Sir, Sub:- Levy of service charges on Titanium Dioxide - Reg. Ref: ----- (1) G.O. (MS) No. 48/89/ID dated 25-3-1988. (2) G.O. (MS) No. 89/26/89/ID dated 2-2-1989. (3) G.O. (MS) No. 2/90/ID dated 5-1-1990. (4) Govt. letter No. 47291/H3/91/ID dated 7-12-1991. (5) Your letter No. CQ/6472 dated 22-12-1993. I am directed to invite your attention to your letter fifth cited and to inform you as follows: The State Government has been rendering various direct and support service to the Travancore Tita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be rendered by a Government in its capacity as a Government (an assumption for which there is no basis legal or otherwise) and as other units in the State also derived benefits from such services, it cannot be said that the services were rendered exclusively in the cause of the assessee and thus disallowed the payment. In the process, the authorities have overlooked the facts that in the preceding years they have allowed the payment as business expenditure, though it was in different sums and under different rates per tonne of Titanium Dioxide. The business of the Government is, no doubt, to govern, but in order to govern it has to augment its resources and any Government, if committed to welfare programmes, has to provide infrastructure for industrial growth, good environment and labour welfare. In this process, it has to have resources to fall back upon and for that purpose in view, the Government can make levies in selected areas or from selected persons or generally in order to carry out its policies regarding industrial growth and welfare. Such collections can be by way of tax, duties or fees. Such collections can also be by way of service charges for specific services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made could not be regarded as either reasonable or necessary. Rejecting this contention, the Supreme Court observed as follows : ". . . But the reasonableness or the necessity of payments .... must be ascertained in the light of what may be regarded as commercially expedient and not on any legalistic considerations. It would not be expected of a businessman to start a litigation in respect of a tax which the Legislature of State was competent to levy on the ground that the method devised for computing the tax liability was ultra vires. The tax was duly assessed and paid and the reasonableness and necessity must be adjudged in the light of the circumstances then prevailing and not in the light of subsequent developments. " What, however, follows from the above discussion is that the fact that an assessee, in the first instance, disputes the validity of a claim or fails to dispute it would not prevent the assessee from claiming the ultimate payment as a proper business expense. Litigiousness cannot be said to be good businessmanship. In the undernoted case [Cannanore Spinning and Weaving Mills Ltd v. CIT [1961] 42 ITR 528 (Ker.)] the board of directors of the assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. CIT v. Chandulal Keshavalal Co. [1960] 38 ITR 601 (SC) relied on. The three tests laid down by the Supreme Court in Gordon Wood-roffe Leather Mfg. Co. v. CIT [1962] 44 ITR 551, viz. (i) that the payment should have been made as a matter of practice which affected the quantum of salary, (ii) that there was an expectation by the employee of getting a gratuity, and (iii) that the sum of money was expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business of the assessee, have to be read disjunctively. " In view of the clear cut pronouncements of the Apex Court we have no hesitation in setting aside the order of the learned CIT (Appeals) and directing the Assessing Officer to grant deduction of the impugned amount of Rs. 5,75,15,000 from its income for the assessment year under consideration. 7. The next dispute is about the disallowance of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to provident fund for the month of March 1991, which was paid only on 13-12-1991. However, he held that the assessee is entitled to claim this amount as a deduction in respect of the assessment year 1992-93. The assessee is aggrieved. 8. Having regard to rival submissions, we modify the order of the learned CIT (Appeals). Provident fund contribution consists of two kinds : (i) contribution received from the employee and (ii) contribution to be made by the employer. Contribution received from the employee is treated as income of the employer at the first instance under section 2(24)(x) of the I.T. Act, 1961. A deduction is allowed under section 36(1)(va) of the I.T Act in respect of such contribution, if it is credited by the assessee to the employee's account in the relevant fund on or before the due date prescribed under the rules of the fund. Thus, even under section 36(1)(va), in respect of contribution recovered from the employees on the last working day of the previous year, the assessee would be entitled to get deduction if he credits the amount within 15th of April as permitted by P.F. Rules. There is no condition that employee's contribution of the last month of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the employer to contribute, how is it possible to make the payment on the same day ? The law cannot be interpreted in such a manner as to put an impossible burden on the subject. Further the rules of provident fund themselves permit payment on or before 15th of the following month. A comparison of the second proviso as it stood before 1-4-1989 and the second proviso as it stood after 1-4-1989 would be revealing : Before 1-4-1989 After 1-4-1989 Provided further that no deduction Provided further that no deduction shall, in respect of any shall, in respect of any sum referred to in clause (b) sum referred to in clause (b), be be allowed unless such sum has allowed unless such sum has actually been paid during the actually been paid in cash or by previous year on or before the issue of a cheque or draft or by due date as defined in the any other mode on or before the Explanation below clause (va) of due date as defined in the Explanation sub-section (1) of section 36. below clause (v) of sub-section (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination of the total income under sub-section (1) of section 143 or regular assessment on an amount equal to the assessed tax or on the amount by which the advance tax falls short of the assessed tax. 12. The words 'whichever is earlier' are not there in the statute. Further, under section 143(3) which enables the Assessing Officer to complete what is known as the regular assessment, it has been provided in sub-section (4) that any tax or interest paid by the assessee under sub-section (1) of section 143 should be deemed to have been paid towards such regular assessment. Therefore, the Assessing Officer is not precluded from levying interest at each stage from the commencement of the proceedings, that is, from the filing of the return to its completion either under section 143(1) or under section 143(3). There is no bar for completing the assessment under section 143(3) even if it had been assessed under section 143(1). Therefore, the Assessing Officer can levy interest up to the date of determination of the total income under section 143(1) and in a case where he also subsequently completes the assessment under section 143(3) he can levy interest under the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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