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TMI Blog1995 (11) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... stead of availing of the benefit of leave travel concession, encash the same by foregoing his right to avail of the benefit as such. In that case, the employee would be entitled to 75% of the eligible fare up to a distance of 1500 kms. each way. According to the assessee, the intention behind allowing this scheme was to discourage the employees to actually avail of the leave which would affect the production of the assessee-company. The encashment facility was in respect of the Leave Travel Concession available to the employees in terms of blocks of four years each. That means that during each such block, the employees could avail of the encashment facility in lieu of the actual Leave Travel Concession for that block period. So far as the present year under appeal is concerned, the block in question comprised of the four calendar years from 1982 to 1985. Since the scheme was launched in September 1983, it covered out of the abovementioned block, the period from September 1983 to December 1985. It was stated by the representative of the assessee before the Assessing Officer that the liability was claimed by the assessee in this year by computing the same on the basis of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued that any extra liability to be incurred by the assessee in case some of the employees would prefer to avail of the actual LTC scheme, would be taken due care of by debiting the corresponding extra liability to the P & L account and claiming the same separately in the respective year. In support of its claim that the assessee actually incurred this amount of minimum liability towards LTC/LTC encashment scheme, during this year itself, reliance was placed by the learned counsel for the assessee on the following decisions : (i) Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC), (ii) Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 at page 67 (SC) and (iii) New Victoria Mills Ltd. v. CIT [1966] 61 ITR 395 (All.). The learned counsel for the assessee fairly admitted that there might be some stray cases where a few of the employees might ultimately choose not to avail either the LTC benefit or even the LTC encashment benefit for this particular block year. He, however, argued that looking to the general tendency of human beings to seek financial benefits in all circumstances within however the legal constraints, such cases where the respective employees would stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was no enforceable liability in the instant case inasmuch as the liability would become enforceable only on exercise of the option between the two competing schemes by the employees. In support of his contentions as above, he has relied on a large number of decisions as mentioned below :-- (i) CIT v. Bharat Earth Movers Ltd. [1995] 211 ITR 515 (Kar.), (ii) CIT v. Hindustan Aeronautics Ltd. [1988] 174 ITR 340 (Kar.), (iii) Mysore Lamp Works Ltd. v. CIT [1990] 185 ITR 96 (Kar.), (iv) Rajasthan State Mines & Minerals Ltd. v. CIT [1994] 208 ITR 1012 (Raj.), (v) CIT v. Oriental Motor Car Co. (P.) Ltd.[1980] 124 ITR 743 (All.) and (vi) CIT v. Indian Metal & Metallurgical Corpn. [1964] 51 ITR 240 (Mad.). 5. In the case of Calcutta Co. Ltd., the assessee-company had bought lands and sold them in plots fit for building purposes undertaking to develop them by laying out roads, providing a drainage system and installing lights, etc. When the plots were sold, the purchasers paid only a portion of the purchase price and undertook to pay the balance in instalments. The assessee, in its turn, undertook to carry out the developments within six months but time was not of the es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits could not properly be estimated without taking them into consideration. The main argument behind taking into consideration the gratuity liability actually accruing during the year was that the employees had earned the right to gratuity by working during the year, although actually gratuity was payable at a future point of time. The Allahabad High Court in the case of New Victoria Mills Ltd. held that though under the mercantile system of accounting, all items of credit are brought into credit immediately they become legally due and before they are actually received and all expenditure is debited, for which a legal liability has been incurred before it is actually disbursed, yet before a credit or debit entry can legitimately be made in the accounts, it must be shown that a certain enforceable liability has accrued or arisen. This particular aspect of the decision however goes against the assessee as we shall discuss later on. 7. Let us now consider the decision of the Karnataka High Court in the case of Bharat Earth Movers Ltd. In that case, the assessee had debited liability towards encashment of earned leave. Provision had been made to meet liability towards such encash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Allahabad High Court found out that the claim of liability as made by the principals of the assessee-company for payment of infringement commission and as agreed to by the assessee under an agreement was of contractual nature and crystallised only when the assessee actually agreed to make such payment and not earlier. Since the agreement in that case was made subsequent to the close of the relevant accounting year, the High Court held the claim of the assessee not to be allowable. The decision of the Madras High Court in the case of Indian Metal & Metallurgical Corpn. relates to the question of allowability for future liabilities in respect of amounts credited by the assessee towards gratuity reserve fund. It was held that even on the principle laid down by the House of Lords in the case of Southern Railway of Peru Ltd. v. Owen (Inspector of Taxes) [1957] 32 ITR 737, the assessee had not approached the question of setting apart of funds to meet a future liability on any scientific basis. Hence, the claim was considered by the High Court to be not enforceable. 12. In the instant case, the assessee has claimed the minimum amount out of the total liability towards LTC and/or LTC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Mills Ltd., no liability in that regard can be said to have accrued or arisen under the mercantile system. Since according to the assessee's own computation, a large number of employees kept their option open till the last date of the relevant accounting year, we cannot consider that the assessee actually incurred the liability towards making of payment to them either under the LTC Scheme or under the LTC Encashment Scheme during this particular accounting year. In this connection, we would like to quote from some of the papers submitted by the learned counsel for the assessee before us relating to the decisions taken by the assessee-company clarifying the position : As per clause 1.4 of such 'Subsequent decisions/clarifications' relating to the LTC Encashment (page 5.5.11), the assessee was actually trying to stagger its liability in this regard throughout the entire block period. The said clause 1.4 is being quoted below :-- " 1.4 Phasing out the encashment during the entire Block period : The financial commitment on account of LTC encashment in the case of employees who are willing to encash the facility should be phased out over the entire period of four years in an equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the order of the ITAT dated 21-9-1995 in ITA No. 1647(Bang.)/1989 for assessment year 1983-84. So far as the matter for this year is concerned, the CIT(A) set aside the matter to the Assessing Officer with a view to examine the issue afresh in the light of the decisions in the case of M. S. P. Exports (P.) Ltd., referred to by the assessee and after giving the assessee an opportunity to take appropriate decision in accordance with law. We cannot find any fault with the abovementioned decision of the CIT(A) nor is there any merit in the claim of the assessee, according to us. Hence, this particular ground is being dismissed. 14. In the third ground, the assessee contends that the CIT(A) erred in holding that the assessee is not entitled to deduction under section 80-I on the eligible profits and gains of the undertakings on the basis of commercial profits for the first year of operation. In this regard, the assessee draws our attention to the language used in sub-section (6) of section 80-I which speaks of allowance of the relevant deduction on the profits and gains of an industrial undertaking, etc., for the assessment year immediately succeeding the initial assessment year by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing the initial depreciation on the buildings including those, the WDVs in respect of which had merely been brought forward in this year. In this connection, the paragraphs 4 and 5 of the CIT(A)'s order detailing out the facts of the case, the issue involved and the decision of the CIT(A) thereon are being quoted below : " 4. Vide ground No. 2, the appellant objects to the action of the I.A.C. in recomputing and reducing the W.D.V. on buildings on 1-4-1983 allowed in the earlier years on certain buildings ignoring the amended provisions of section 32(1)(iv) and holding that they do not operate retrospectively and that recomputation of opening written down value is not permissible. The appellant claims that the statute was introduced with effect from 1984-85 by the Finance Act, 1983 which came into effect from 1-4-1984 which meant that initial depreciation admissible for assessment years commencing from 1984-85 will have to be deducted in arriving at the W.D.V. However, the Assessing Officer relied on the Board's Circular No. 372 dated 8-12-1983 and applied the provisions retrospectively by recomputing the value of the W.D.V. in respect of closing balance of W.D.V. as on 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1984-85 under section 32(1)(iv) in terms of the amended provisions of the Finance Act, 1983 with effect from April 1984. The appellant succeeds. " On examination of the amendment caused to clause (iv) of sub-section (1) of section 32 by the Finance Act, 1983 with effect from 1-4-1984, we find that under the said amendment only the following expression was deleted : " but any such sum shall not be deductible in determining the written down value for the purposes of clause (ii) of sub-section (1). " The expression " written down value " has been defined in section 43(6) to mean in the case of assets acquired before the relevant previous year, the actual cost to the assessee less all depreciation actually allowed to him under the 1961 Act or any earlier Income-tax Act. There is a specific proviso added to this definition about " depreciation actually allowed " not including depreciation allowed under sub-clauses (a), (b) and (c) of clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922, where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi). However, no amendment was brought to this defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the cash compensatory support is actually taxable. The order of the CIT(A) in this regard is, therefore, being knocked down and the addition as made in the original assessment is being restored. 21. In the next ground, the Department challenges the decision of the CIT(A) in holding that technical assistance fee of Rs. 66,20,672, if paid, is to be treated as revenue expenditure and not as a capital expenditure. The CIT(A) relied on the decision of the Karnataka High Court in the case of Mysore Kirloskar Ltd.v. CIT [1978] 114 ITR 443 (FB), on this issue. The Department has raised the ground that the aforesaid decision of the Karnataka High Court has not become final and the issue is pending before the Supreme Court. We are, however bound by the abovementioned decision of the Karnataka High Court. Following the same, we uphold the decision of the CIT(A). 22. The next ground relates to addition made under section 43B. It is contended that the CIT(A) erred in directing the Assessing Officer to verify the actual dates of payments and whether they were paid within the 'due date' in accordance with the ratio of the decision of the ITAT in the case of Sanjay Sales Syndicate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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