TMI Blog2017 (11) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... eport has no basis to say that it was not due and will only become due when the pay revision is accepted by the employees. In our view, the employees are entitled to revised pay from the date it was due and payable by the employer. See Commissioner or Income Tax V/s Bharat Heavy Electrical (2012 (9) TMI 515 - DELHI HIGH COURT) - Decided against revenue - D. B. Income Tax Appeal No. 127 / 2016 - - - Dated:- 24-10-2017 - K. S. Jhaveri And Vijay Kumar Vyas, JJ. For the Appellant : Ms. Parinitoo Jain For the Respondent : Mr. Dinesh Kumar JUDGMENT 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee. 2. This court while admitting the appeal on 07.09.2016 framed the following questions of law:- 1. Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and allowing the deduction of ₹ 140 lacs claimed on account of ad-hoc provision for pay revision of employees specifically when the Act provides for taxation of real income and not the book income? 2. Whether the Tribunal was legally justified in reversing the findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable construction to give effect to the purpose or intention of any particular provision as apparent from the scheme of the Act, with the assistance of such external aids as are permissible under the law (ii) Hon'ble Supreme Court has also laid down this principle in the case of M/s Gemini Cashew Sales Corporation 65 ITR 643 and observed that Where accounts are maintained on the mercantile system, if liability to make the payment has arisen during the time the business is carried on, it may oppropriately be regarded as expenditure. But where the liability is, during the whole of the period that the business is carried on, wholly contingent and does not raise any definite obligation during the time that the business is carried on, it cannot fall within the expression expenditure laid out or expended whilly and exclusively for the purpose of the business. Two cases illustrative of the principle may be noticed. It was held by the Madras High Court in CIT v. Indian Metal and Metallurgical Corporation that a provision made in the annual accounts maintained by an employer setting apart by way of a reserve to meet the liability, if any, to which the employer may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial expediency but not of necessity. The test of necessity is whether the intention was to earn trading receipts or to avoid future recurring payments of a revenue character. Expenditure in this sense is equal to disbursement which, to use a homely phrase, menas something which comes out of the trader's pocket. Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income-tax laws do not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in praesentiand a liability de futurowhich, for the time being, is only contingent. The former is deductible but not the latter. The case which illustrates this distinction is Peter Merchant Ltd. V. Stedeford. No doubt, that case was decided under the system of income tax laws prevalent in England, but the distinction is real. What a prudent trader sets apart to meet a liability, not actually present but only contigent, cannot bear the character of expense till the liability becomes real. Expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned parties i.e. Management and Union of Employees in the financial year under consideration. On the basis of agreement, the payments were also made to the employees from the effective date. Therefore, the conclusion of ld. CIT (A) that there was no crystallized liability and no agreement was arrived at between the parties, is without any merit. The appellant is a Gramin Bank sponsored by Punjab National Bank and having the trapping of scheduled bank. The appellant is also governed by the instructions issued by the RBI in this regard. In our opinion, the employees are entitled to the revision of the pay not when the report of the commission or committee is submitted to the management, but the employees are entitled to the revised pay from the date when it is found to be due and payable. The submission of report or acceptance of the report has no basis to say that it was not due and will only become due when the pay revision is accepted by the employees. In our view, the employees 8 ITA No. 169/JP/2015 A.Y. 2010-11. Erstwhile Rajasthan Gramin Bank Ltd vs. DCIT are entitled to revised pay from the date it was due and payable by the employer. However, the quantum may vary, as in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing for the Revenue and Shri Baiachandran, learned senior counsel appearing for the respondent assessee. Learned standing counsel referred to the decision of the Calcutta High Court in CIT vs. Teesta Valley Co. Ltd. (1991) 187 ITR 657 (Cal) and the decision of the Bombay High Court in Tyresoles Goa (P) ltd vs. CIT (1992) 101 CTR(Bom)349 : (1992) 193 ITR 649 (Bom), and contended that the liability in this case is contingent in nature and therefore not an admissible deduction. The assessee, on the other hand, relied on the decision of the Supreme Court in Bharat Earth Movers Vs. CIT(2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC), the decision of the Rajasthan High Court in CIT vs. Premier Vegetable Products (1996) 133CTR (Raj) 372 : (1997) 227 ITR 931 (Raj) and the decision of the Bombay High Court in CIT Vs. United Motors (India) Ltd. (1990) 181 ITR 347 (Bom), and contended that liability for increased wages, though ascertained and discharged in the subsequent year being liability of the previous year is an prevailing between the management and the employees expired on 31st July, 1992,i.e. during the previous year. Therefore, the employees were entitled to wage revision from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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