9911796707
TMI Blog2009 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... owing 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 longer res integra as now the question is covered by the judgment of the Supreme Court in Smith Kline and French (India) Ltd. & Ors. vs. Commissioner of Income Tax, 219 ITR 581(S.C.). In the light of the above the question is answered in the affirmative against the assessee and in favour of the Revenue. 4. That brings us to the second question referred at the instance of the assessee, whether the provisions for set-on liability under Section 15 of the Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee, it is diverted to another person or fund by virtue of the overriding legal obligation. As the allocable surplus is determined out of the profits of the assessee, all that Section 15 of the Payment of Bonus Act requires is that the surplus amount, after paying the maximum bonus, should be carried forward for a limited period. The bonus reserve the Court observed is created voluntarily for the same purpose and it will not be allowed as deduction. The Court then held that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture 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 entitled for vacation leave of 18 days in a year. Both earned leave and vacation leave could be accumulated upto a maximum of 240 days and 126 days respectively. The company created a found by making a provision for meeting such liability. If the employee accumulates leave in a particular year then in the succeeding year the employee may either avail of the leave or apply for encashment. If he avails of the leave then additional provision for encashment is not made in the reserve account. The earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. The important aspect to be noted is that the provisions in the leave reserve was only made if the employee did not avail of the leave. 10. The question is whether the ratio of this judgment in Bharat Earth Movers (supra) can be made applicable in the case of making provision for allocation of surplus under Section 15 of the Payment of Bonus Act. The answer to the question would be whether the liability is a subsisting liability or a contingent liability in terms of the tests laid down in Bharat Earth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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