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Income-Tax v. Mahindra & Mahindra Ltd.

Bombay High Court
Sep 30, 2005
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

Income Tax Reference No. 179 of 1988

Attorney(S)

S.E Dastur, senior counsel with B.V Jhaveri

Ashok Kotangale for the applicant.

JUDGES

V.C Daga

A.S Aguiar, JJ.

ACTS

sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3 A) of section 211,

SECTION 256 INCOME TAX ACT 1961

provisions of I.T Rules 87 and 88

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Smart Summary (Beta)

Structured Summary of the Opinion (Per V.C. Daga, J.)

Factual and Procedural Background

This opinion arises from a reference under section 256 of the Income-tax Act, 1961, made by the Income Tax Appellate Tribunal (ITAT). The Tribunal referred eight questions of law to this Court concerning various tax issues relating to the assessee (Mahindra & Mahindra Ltd.) for assessment years around 1977-78. The referred questions relate to the applicability of IT Rules and a CBDT notification vis-à-vis section 36(1)(iv), the allowability of initial contributions to a superannuation fund, the deductibility of a donation to an education society, whether certain expenditures constitute entertainment expenditure under section 37(2B), whether a road constructed by the company is a "plant" under section 43(3) eligible for depreciation, levy of interest under section 216, the allowability of actuarially determined special pension liability as a deduction, and the revenue or capital nature of legal and foreign travel expenses in connection with a merger.

The parties appeared before this Court, and in several questions counsel for the parties agreed that earlier decisions of this Court cover the issues. The Court considered the referred questions, relevant precedents cited in the record, the factual findings of the Tribunal and the authorities below, and delivered answers to each referred question. The reference was disposed of with no order as to costs.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of I.T. Rules 87 and 88 and the Board's notification issued in exercise of the powers conferred u/s.36(1)(iv) of the I.T. Act should be ignored as being in conflict with the provisions of sec.36(1)(iv)?
  2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing as a deduction u/s.37 of the I.T. Act the entire initial contribution to the superannuation fund in respect of liability as on the last day of the accounting year in respect of the entire service of the employees of the company, who were for the first time admitted to the benefits of the superannuation fund, as representing the assessee's liability for the assessment year 1977-78?
  3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the donation of Rs. 1,25,777/- to an education society was allowable as an expenditure wholly and exclusively for the purpose of business?
  4. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 38,100/- towards supply of tea, soft drinks is entertainment expenditure u/s.37(2B) of the I.T. Act, 1961?
  5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the road constructed by the company constituted 'plant' within the meaning of sec.43(3) of the I.T. Act, 1961, and is eligible for depreciation allowance?
  6. Whether on the facts and in the circumstances of the case, interest u/s.216 could be levied when the advance tax payable itself was not underestimated as the amount payable in instalments was a loss?
  7. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the full liability on actuarial basis on account of special provision represented an accrued liability and was an admissible deduction in computing the profits of the assessee company for assessment year 1977-78?
  8. Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing legal expenses of Rs. 8,000/- and foreign travel expenses of Rs. 47,754/- in connection with the merger of International Tractor Co. of India Ltd. as a revenue expenditure in computing the total income of the company for assessment year 1977-78?

Arguments of the Parties

Appellant (Revenue) - Principal Arguments as Recorded

  • On question No. 6 (interest under section 216), the Revenue argued that the authorities below erred in relying upon the Andhra Pradesh High Court judgment in Addl. CIT v. Vazir Sultan Tobacco Co. Ltd. (122 ITR 251), because this Court in Oudh Sugar Mills Ltd. v. C.I.T. (1994) 210 ITR 692 did not accept the correctness of Vazir Sultan. The Revenue also referred to a Full Bench decision in C.I.T v. Rayalaseema Mills Ltd. (1997) 228 ITR 477 as not approving Vazir Sultan.
  • On question No. 7 (actuarial special pension liability), the Revenue submitted that the amounts had not been actually paid and therefore, the respondent-assessee was not entitled to claim a deduction on actuarial basis unless the liability was actually discharged.
  • On question No. 4 (Rs. 38,100/- entertainment expenditure), the Revenue did not press the question considering the negligible amount involved.

Respondent (Assessee) - Principal Arguments as Recorded

  • On question Nos. 1 and 2, counsel for the assessee agreed with the view that earlier decisions of this Court (including reliance on C.I.T v. Sirpur Paper Mills (1999) 237 ITR 41) support the proposition that a CBDT notification cannot curtail the scope of deduction granted by the Act; thus those questions should be answered in favour of the assessee.
  • On question No. 3, counsel agreed that the issue was covered by this Court's earlier decision in Mahindra & Mahindra Ltd. v. C.I.T. (2003) 261 ITR 501, favouring the assessee.
  • On question No. 6, the assessee contended (relying upon Addl. CIT v. Vazir Sultan Tobacco Co. Ltd.) that section 216 requires the Income-tax Officer to record a finding, at the time of regular assessment, that the assessee had underestimated advance tax under section 211 sub-sections (1), (2), (3) or (3A); since no such finding was recorded by the I.T.O. in the assessment order dated 5 September 1980, interest under section 216 could not be levied.
  • On question No. 7, the assessee argued that accounts were maintained on mercantile basis and that an actuarial valuation of an existing liability in respect of employees who had already retired established an accrued liability. Relying on the decision in C.I.T v. National Insurance Co. (1981) 127 ITR 54 and related precedents, the assessee submitted the actuarial provision represented an accrued liability and should be allowable as a deduction.
  • On question No. 8, the assessee relied upon the Apex Court judgment in C.I.T v. Bombay Dyeing and Mfg. Co. Ltd. (1996) 219 ITR 521 to contend that the legal and foreign travel expenses in connection with a merger are of revenue nature and allowable.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
C.I.T v. Sirpur Paper Mills (1999) 237 ITR 41 That a notification issued by the CBDT cannot curtail the scope of deduction granted by the Act. Relied upon (through earlier decisions) to answer Question Nos. 1 and 2 in favour of the assessee, holding that the CBDT notification and I.T. Rules 87 and 88 could not override section 36(1)(iv).
CJ.T v. Mahindra Sintered Products Ltd. (2001) 252 ITR 576 Applied as a prior decision of this Court covering issues similar to Questions Nos. 1 and 2. Used (together with Mahindra & Mahindra Ltd. v. C.I.T.) as authority to answer Questions Nos. 1 and 2 in favour of the assessee.
Mahindra & Mahindra Ltd. v. C.I.T (2003) 261 ITR 501 Prior decision of this Court on similar questions (including deductibility of donation and other issues). Applied to answer Question No. 3 in favour of the assessee; also referenced for Question No. 5 (road as building) as the Court had earlier dealt with similar issues in the assessee's case.
C.J.T v. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 196 ITR 149 Principle regarding whether a road constructed within factory premises is a 'plant' or not. Relied upon (through Mahindra & Mahindra Ltd. decision) to hold that a road within factory premises is not a plant but is a building; used to answer Question No. 5 in favour of the Revenue.
Addl. CIT v. Vazir Sultan Tobacco Co. Ltd. (1980) 122 ITR 251 Held that section 216 requires the Income-tax Officer to record a finding at assessment that the assessee underestimated advance tax before interest can be levied. The Tribunal and C.I.T(A) relied on this decision to set aside interest levied under section 216; the Court accepted the principle (that a recording of finding is necessary) and answered Question No. 6 in favour of the assessee.
Oudh Sugar Mills Ltd. v. C.I.T (1994) 210 ITR 692 This Court did not accept the correctness of Vazir Sultan (as noted by Revenue's counsel). The Revenue relied on this decision to challenge reliance on Vazir Sultan, but the Court in the present opinion concluded that Vazir Sultan's principle (regarding recording of finding) remains valid for the present facts and upheld Tribunal's view.
C.I.T v. Rayalaseema Mills Ltd. (1997) 228 ITR 477 Full Bench of Andhra Pradesh High Court did not approve Vazir Sultan (as contended by Revenue). Referred to by Revenue in argument; the Court observed that Revenue's counsel could not point to any adverse judgment sufficient to overturn the Tribunal's reliance on Vazir Sultan for the present matter, and therefore sustained the Tribunal's finding.
C.I.T v. National Insurance Co. (1981) 127 ITR 54 Held that a definite liability that has already arisen (e.g., pension liabilities) may be deductible where accounts are on a mercantile basis and actuarial valuation is produced. The Tribunal relied on this decision to allow actuarially quantified pension liabilities as deductions; this Court accepted that reliance and answered Question No. 7 in favour of the assessee.
C.I.T v. Easter Spinning Mills Ltd. (1980) 126 ITR 686 Earlier Calcutta High Court view supporting allowance of provisions for liabilities like gratuity on actuarial valuation. Noted as part of the chain of authorities underlying the National Insurance Co. judgment; cited in support of allowing actuarial provisions as deductions.
Indian Molasses Co. (P) Ltd. v. C.I.T (1959) 37 ITR 66 Earlier Apex Court authority concerning allowance of provisions and related issues. Referenced as part of earlier Apex Court authorities upon which the High Court and Tribunal relied to allow actuarial provisions as deductions.
Standard Mills Co. Ltd. v. C.W.T (1967) 63 ITR 470 Earlier precedent involving similar issues regarding provisions and deductions. Cited as part of the chain of authorities supporting allowance of actuarial provisions.
C.I.T v. Bombay Dyeing and Mfg. Co. Ltd. (1996) 219 ITR 521 Apex Court judgment on when expenses connected with corporate restructuring/merger may be of revenue nature. Applied by this Court to answer Question No. 8 in favour of the assessee, holding the legal and foreign travel expenses in connection with the merger to be of revenue nature and allowable.

Court's Reasoning and Analysis

The Court considered each referred question sequentially, taking into account the parties' agreements, factual findings of the Tribunal and authorities below, and relevant precedents as recorded in the file. The Court's reasoning, as presented in the opinion, proceeded as follows:

  1. Questions Nos. 1 and 2: The Court noted that counsel for the parties agreed these questions are covered by this Court's prior decisions (including reliance on the Apex Court's decision in C.I.T v. Sirpur Paper Mills). Those precedents established that a CBDT notification cannot curtail the scope of deduction granted by the statute. On that basis, the Court answered Questions Nos. 1 and 2 in the affirmative for the assessee.
  2. Question No. 3: The Court observed that the parties agreed this question is covered by the Court's earlier decision in the assessee's case (Mahindra & Mahindra Ltd. v. C.I.T). Accordingly the Court answered Question No. 3 in the assessee's favour.
  3. Question No. 4: The Court recorded that the amount in dispute (Rs. 38,100/-) was negligible and that the Revenue did not press the question; accordingly the Court returned the question unanswered.
  4. Question No. 5: The Court accepted the assessee's fair submission that the Court had already addressed a similar question in the assessee's earlier case and that, relying upon C.J.T v. Gwalior Rayon Silk Manufacturing Co. Ltd., the road within factory premises had been held not to be a 'plant' but a building. Applying that view, the Court answered Question No. 5 in the negative (in favour of the Revenue).
  5. Question No. 6 (interest under section 216): The Court examined the assessment record and the appellate findings. It noted that the I.T.O. had levied interest under section 216 without recording any finding that the assessee had underestimated its income when filing estimates under section 211. The C.I.T(A) and the Tribunal had set aside the interest, following Addl. CIT v. Vazir Sultan Tobacco Co. Ltd., which requires a recorded finding to levy interest under section 216. The Revenue contested reliance on Vazir Sultan, citing Oudh Sugar Mills and Rayalaseema Mills. The Court, after hearing counsel, observed that the I.T.O. did not record any finding required by section 216 and that the Revenue's counsel could not point to a binding adverse judgment sufficient to negate the applicability of the Vazir Sultan principle for this case. The Court therefore sustained the Tribunal's decision and answered Question No. 6 in favour of the assessee.
  6. Question No. 7 (actuarial liability for special pension): The Court set out the Tribunal's factual findings: notices terminating services of certain officers effective 1 January 1976; 75 officers retired; additional officers terminated during the accounting year; actuarially quantified liabilities; partial actual payment during the year (Rs. 5,44,140/-) while the actuarial liability was larger. The Tribunal relied on C.I.T v. National Insurance Co. and related precedents to hold that where accounts are kept on a mercantile basis and an existing liability has been actuarially quantified, the provision represents an accrued liability and is deductible. The Court accepted the Tribunal's factual findings and its reliance on National Insurance Co. and related authorities, and therefore answered Question No. 7 in the affirmative for the assessee.
  7. Question No. 8 (legal and foreign travel expenses for merger): The Court found the issue squarely covered by the Apex Court's judgment in C.I.T v. Bombay Dyeing and Mfg. Co. Ltd. The Court applied that authority and answered Question No. 8 in favour of the assessee, holding the expenses to be revenue in nature.
  8. Final disposition: The Court disposed of the reference in terms of the answers given to the individual questions and recorded that there was no order as to costs.

Holding and Implications

Reference Disposed Of — The Court answered the referred questions as follows (direct holdings derived from the opinion):

  • Question Nos. 1 and 2: Answered in the affirmative — in favour of the assessee and against the Revenue. The CBDT notification and I.T. Rules 87 and 88 could not curtail the statutory scope of deduction under section 36(1)(iv) as interpreted in the cited precedents.
  • Question No. 3: Answered in the affirmative — in favour of the assessee and against the Revenue (donation to education society held allowable as business expenditure as per earlier decision in the assessee's case).
  • Question No. 4: Returned unanswered — the Revenue did not press this question due to the negligible amount involved (Rs. 38,100/-).
  • Question No. 5: Answered in the negative — in favour of the Revenue and against the assessee. The road constructed within factory premises is not a 'plant' under section 43(3) but is a building (following earlier authority cited).
  • Question No. 6: Answered in the affirmative — in favour of the assessee and against the Revenue. Interest under section 216 could not be levied where the I.T.O. did not record the requisite finding of underestimation at assessment.
  • Question No. 7: Answered in the affirmative — in favour of the assessee and against the Revenue. Actuarially computed liability for pension where the liability had accrued (and was quantified) was allowed as a deduction on the mercantile basis of accounting.
  • Question No. 8: Answered in the affirmative — in favour of the assessee and against the Revenue. Legal expenses and foreign travel expenses in connection with the merger were held to be revenue expenditure.

Consequences: The direct effect of the Court's answers is to relieve the assessee of the disallowances or charges contested in the referred questions as specified above. The Court applied and followed existing case law; the opinion does not purport to create a novel legal principle beyond the application of cited precedents to the facts before it. The reference was disposed of with no order as to costs.

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JUDGMENT: (Per V.C Daga, J.)

By this reference under section 256 of the Income-tax Act, 1961 (“Act” for short), the Income Tax Appellate Tribunal has referred the following questions of law for the opinion of this Court:

1. Whether, on the facts and in the circumstances of the case, the Tribunal being the custodian of the I.T Act, was right in law in holding that the provisions of I.T Rules 87 and 88 and the Board's notification issued in exercise of the powers conferred u/s.36(1)(iv) of the I.T Act should be ignored as being conflict with the provisions of sec. 36(1)(iv)?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing as a deduction u/s.37 of the I.T Act the entire initial contribution to the superannuation fund in respect of liability as on the last day of the accounting year in respect of the entire service of the employees of the company, who were for the first time admitted to the benefits of the superannuation fund, as representing the assessee's liability for the asstt. year 1977-78?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the donation for Rs. 1,25,777/- to an education society was allowable as an expenditure wholly and exclusively for the purpose of business?

4. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 38,100/- towards supply of tea, soft drinks is entertainment expenditure u/s.37(2B) of thel.T Act, 1961?

5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the road constructed by the company constituted ‘plant’ within the meaning of sec.43(3) of the I.T Act, 1961, and is eligible for depreciation allowance?

6. Whether on the facts and in the circumstances of the case, the interest u/s. 216 could be levied on the advance tax payable itself was not underestimated being the amount payable in instalments was a loss?

7. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the full liability on actuarial basis on account of special provision represented on accrued liability and was an admissible deduction in computing the profits of the assessee company for asstt. year 1977-78?

8. Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing legal expenses of Rs. 8,000/- and foreign travel expenses of Rs. 47,754/- in connection with the merger of the international Tractor Co. of India Ltd. as a revenue expenditure in computing the total income of the company for assessment year 1977-78?

Question Nos. 1 and 2:

2. Learned counsel for the parties agreed that so far as question Nos. 1 and 2 are concerned, they are covered by the decision of this Court in the case of CJ.T v. Mahindra Sintered Products Ltd., (2001) 252 ITR 576 and Mahindra & Mahindra Ltd. v. C.I.T, (2003) 261 ITR 501; wherein similar questions did arise and relying on the judgment of the Apex Court in the case of C.I.T v. Sirpur Paper Mills, (1999) 237 ITR 41; this Court has held that the notification issued by the CBDT cannot curtail the scope of deduction granted by the Act. In this view of the matter, question Nos. 1 and 2 both have to be answered favour of Assessee and against the Revenue. Accordingly, question Nos. 1 and 2 stand answered in affirmative i.e in favour of assessee and against the revenue.

Question No. 3:

3. Learned counsel for the parties also agreed that this question is also covered by the judgment of this Court in the case of assessee itself reported in (2003) 261 ITR 501 (Mahindra & Mahindra Ltd. v. C.I.T). Accordingly, question No. 3 has to be answered in the affirmative i.e in favour of the assessee and against the revenue. We answer the said question accordingly.

Question No. 4:

4. So far as question No. 4 is concerned, the amount involved is only Rs. 38,100/-. Learned counsel for the revenue, at whose instance the question has been referred, does not press question considering the negligible amount involved. The said question is, thus, returned unanswered.

Question No. 5:

5. Learned counsel for the assessee fairly submitted that this Court in assessee's own case reported in (2003) 261 ITR 501 (Mahindra & Mahindra Ltd. v. C.I.T) had occasion to answer the similar question; wherein this Court, relying upon the judgment of the Apex Court in the case of C.J.T v. Gwalior Rayon Silk Manufacturing Co. Ltd., (1992) 196 ITR 149, has held that the road constructed within the factory premises of the company is not a plant but is a building. In this view of the matter the question No. 5 herein is answered in negative i.e in favour of Revenue and against the Assessee.

Question No. 6

6. So far as question No. 6 is concerned, it pertains to interest under section 216 of the Act.

The Income Tax Officer (“I.T.O” for short) had levied interest under section 216 without recording any finding that the assessee had underestimated its income while filing estimate under section 212 of the Act. Appeal was filed before CI.T(A). The said appellate authority in its order observed as under:

Sec.216 provides that interest under that section is chargeable only when the advance tax payable has been underestimated and the assessee has thereby reduced the amount payable in either of the two instalments. The Income Tax Officer has not given any finding that the appellant had deliberately underestimated its income as also the advance tax payable thereon in the first two instalments. No finding has been given by the Income-tax Officer to this effect. Since no finding about any default committed by the assessee in this regard has been given by the ITO, I would hold that the interest has not been correctly levied following the decision of the Andhra Pradesh High Court in the case of Additional CIT v. Vazir Sultan Tobacco Co. Ltd. (122 ITR 251). In the result the last ground of appeal is allowed.”

It is not in dispute that I.T.O did not record any finding that there was any wilful default on the part of the assessee. In second appeal from the order of C.I.T(A), the tribunal was pleased to uphold the order of C.I.T(A); whereunder levy of interest under section 216 was set aside.

7. Learned counsel appearing for the Revenue tried to contend that the finding of the Tribunal is not in accordance with law. According to him, the authorities below could not have relied upon the judgment of the Andhra Pradesh High Court in the case of Addl. CLT. v. Vazir Sultan Tobacco Co. Ltd., (1980) 122 ITR 251 in view of the judgment of this Court in the case of Oudh Sugar Mills Ltd. v. C.I.T, (1994) 210 ITR 692; wherein this Court did not accept the correctness of the judgment in the case of Vazir Sultan (supra). He submits that the judgment in the case of Vazir Sultan (supra) was also not approved by the Full Bench of the Andhra Pradesh High Court in the case of C.I.T v. Rayalaseema Mills Ltd., (1997) 228 ITR 477.

8. Per contra, Mr. Dastur, senior counsel appearing for the respondent - assessee submits that so far as the judgment of Vazir Sultan (supra) is concerned, the said judgment, to the extent it holds that section 216 requires that the I.T.O must record a finding, at the time of regular assessment; that the assessee, under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3 A) of section 211, has underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments, still holds good. He submits that so far as necessity of recording of finding by the I.T.O is concemed, none of the High Courts have taken any view contrary to the view taken in the case of Vazir Sultan (supra) on this count. He submits that in the case on hand, no finding as required under section 216 has been recorded by the I.T.O in the assessment order dated 5th September, 1980. Based on this he submits that no fault can be found with the finding recorded by the Tribunal in this behalf. Accordingly, he prayed that this question be answered in favour of the assessee.

9. In rejoinder, when Mr. Kotangale, learned counsel for the Revenue called upon to react to the above submission made by Mr. Dastur, he could not point out any adverse judgment of any Court nor could he demolish the submission advanced by Mr. Dastur.

10. Mere reading of section 216 of the Act brings out the necessity of recording a finding by the I.T.O as canvassed by Mr. Dastur. In this view of the matter, no fault can be found with the view taken by the tribunal. Thus, question No. 6 is answered in favour of the assessee and against the Revenue.

Question No. 7

11. So far as question No. 7 is concerned, the facts found by the Tribunal are as under:

On 20 September, 1975 the company issued notice terminating the services of certain officers effective from 1st January, 1976. In effect the services of 75 officers were terminated from this date which falls in the accounting year relevant to the assessment year 1911-1%. The company had claimed that the actuarially quantified liability of Rs. 30,57,740/- in respect of special pension should be allowed in the assessment year 1976-77. Thel.T.O disallowed this claim on the ground that the liability would have to be considered in the year in which retirement took place. In view of this decision, ofthel.T.O and having regard to the uncertainty regarding the outcome of appeal for that year, the appellant had staked the claim for the same amount in the year 1977-78 the year in which the retirement has taken place. During the year ended 31 October 1976, the company paid Rs. 5,44,140/- which was the actual amount paid. Shri Khare submitted that when the accounts are maintained on a mercantile basis, and when the actuarial valuation of existing liability was produced before the ITO, such liability should have been allowed and the factum of actual payment was irrelevant”

12. The tribunal relying upon the decision of the Calcutta High Court in the case of C.I.T v. National Insurance Co., (1981) 127 ITR 54 held that there was a definite liability to the pensioners which had already arisen as such assessee was entitled to claim deduction on this account.

13. The tribunal in the case on hand found that 75 officers had already retired on 1 January, 1976 whereas services of 8 more officers were terminated during the year ended 31 October, 1976. The tribunal, thus, found that the claim for deduction claimed on the basis of accrual of liability could not be rejected merely on the ground that the assessee did not pay the liability or deferred its payment during the year under reference. The tribunal having noticed mercantile method of accounting followed by the respondent-assessee under which, if a business liability has definitely arisen in the accounting year, a deduction could be claimed. The provision in the books of accounts in respect of special pension had been made on the basis of liability which was accrued and quantified actuarially. The tribunal was, thus, pleased to allow deductions of liabilities in respect of staff retired on 1 January, 1976 amounting to Rs. 30,57,740/-, and in respect of 8 officers whose services were terminated during the accounting year, the liability of which was in the sum of Rs. 8,52,913/-.

14. Learned counsel for the revenue submitted that the amount has not been actually paid and, therefore, the respondent-assessee was not entitled to claim deduction on actuarial basis unless the liability was actually discharged.

15. Per contra, Mr. Dastur tried to support the findings recorded by the tribunal. He reiterated the submissions which were made before the tribunal, reproduction of which is not necessary since the same are to be found in the order of the authorities below. Mr. Dastur relying upon the decision the of the Calcutta High Court in National Insurance Co. (supra) submitted that since the persons, in respect of whom provision of pension was made, had already retired, there was an existing liability in terms of their employment as such existing liability was actuarially computed and the provision for the same was made as such the amount of deduction represented an accrued liability and was an admissible deduction in computing the profits of the assessee for the assessment year 1977-78.

16. Having heard rival parties, the submissions made by Mr. Dastur deserve acceptance. No fault can be found with the view taken by the tribunal. The judgment in National Insurance Co. (supra) relied upon by Mr. Dastur is based on the earlier view of the Calcutta High Court in the case of C.I.T v. Easter Spinning Mills Ltd., (1980) 126 ITR 686, which in turn was based on the earlier judgments of the Apex Court amongst others in the case of Indian Molasses Co. (P) Ltd. v. C.I.T, (1959) 37 ITR 66 and Standard Mills Co. Ltd. v. C.W.T (1967) 63 ITR 470; wherein more or less similar issues were involved. The High Court ruled that a prudent businessman is always bound to make a fair estimate of his liability under the Act from year to year and is entitled to make provision for such liability. While considering the liability arising on account of payment of gratuity the High Court ruled that such liability is always in the form of deferred payment of wages of the employees concerned as such the said deduction can be allowed on the actuarial valuation. Respectfully agreeing with the above view, we do not find any fault with the view taken by the tribunal. We, in the result, answer question No. 7 in the affirmative i.e in favour of the assessee and against the revenue.

Question No. 8

17. So far as question No. 8 is concerned, it pertains to legal expenses incurred in the sum of Rs. 8,000/- and on account of foreign travel in the sum of Rs. 47,754/- in connection with the merger of assessee with International Tractor Co. of India Ltd. The expenses in question were held to be of revenue nature. The issue raised is squarely covered by the judgment of the Apex Court in the case of C.I.T v. Bombay Dyeing and Mfg. Co. Ltd., (1996) 219 ITR 521. In that view of the matter, the said question requires to be answered in favour of the assessee and against the Revenue and stands answered accordingly.

18. Reference stands disposed of in terms of the above order with no order as to costs.

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