Vildirect: IncomeTax-caselaws-1995-VIL-373-BOM-DT

1995-VIL-373-BOM-DT

Equivalent Citation: [1996] 219 ITR 178, 132 CTR 137, 85 TAXMANN 444

BOMBAY HIGH COURT

Date: 17.11.1995

COMMISSIONER OF INCOME-TAX

TATA HYDRO ELECTRIC SUPPLY COMPANY LIMITED

BENCH

Judge(s) : DR. B. P. SARAF., M. L. DUDHAT

JUDGMENT

The judgment of the court was delivered by

DR. B. P. SARAF J.--By this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following four questions of law to this court for opinion :

" 1. Whether, on the fac ts and in the circumstances of the case, the assessee was entitled to depreciation on increased repayment liability arising as a result of fluctuations in the rate of exchange of foreign currencies in which the World Bank loans were required to be repaid ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to depreciation on the increased repayment liability due to revaluation of the German Mark and Netherland Guilders in 1961 ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the meaning of the w ord 'paid' as used in section 36(1)(iv) in connection with the contribution of an employer towards an approved superannuation fund is that given in section 43(2) ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to the deduction of Rs. 1,49,708 in respect of the provision to the approved superannuation fund scheme, though not actually paid ? "

Counsel for the parties are agreed that questions Nos. 1 and 2 are covered in favour of the assessee by the decision of this court in assessee's own case CIT v. Tata Hydro Electric Power Supply Co. Ltd. [1986] 159 ITR 28. In that view of the matter, we answer both these questions in the affirmative and in favour of the assessee.

The facts relevant for questions Nos. 3 and 4 are as follows :

During the previous year relevant to the assessment year 1978-79, the assessee had made a provision for contribution to the approved superannuation fund to the tune of Rs. 1,49,708. The assessee claimed deduction of the above amount in the computation of its income by virtue of section 36(1)(iv) of the Act. The Income-tax Officer did not allow the claim of the assessee as, according to him, the amount had not been actually paid during the relevant previous year as required by section 36(1)(iv) of the Act. The assessee appealed against this disallowance to the Commissioner of Income-tax (Appeals). The contention of the assessee before the Commissioner (Appeals) was that as it was following the mercantile system of accounting, it was obligatory on its part during the previous year to provide for the liability on account of contribution to the superannuation fund on accrual basis. It was submitted by the assessee that by virtue of the definition contained in section 43(2) of the Act, the expression "paid" appearing in section 36(1)(iv) would mean both "actually paid" or "incurred according to the method of accounting upon the basis of which profits or gains are computed". This submission of the assessee found favour with the Commissioner (Appeals). The Commissioner (Appeals) accordingly set aside the order of the Income-tax Officer disallowing deduction of a sum of Rs. 1,49,708 and held that the assessee was entitled to deduction of the same under section 36(1)(iv) of the Act. The appeal of the Revenue against the above order of the Commissioner (Appeals) was dismissed by the Income-tax Appellate Tribunal. Hence, this reference at the instance of the Revenue.

We have heard learned counsel for the Revenue who submits that the word "paid" appearing in section 36(1)(iv) would mean "actually paid" and that it cannot be construed to mean and include expenditure "incurred but not paid". We have given our careful consideration to the above submission. We, however, find it difficult to accept the same in view of section 43(2) of the Act which specifically defines the expression "paid" for the purposes of "sections 28 to 41" which obviously would include section 36(1)(iv) of the Act. Section 36(1)(iv) of the Act provides, inter alia, for allowance of deduction in computing the income of an assessee referred to in section 28 of the Act of any sum paid by the assessee as an employer "by way of contribution towards an approved superannuation fund" subject to such limits as have been prescribed for the purpose of approving the superannuation fund. Section 36(1)(iv) reads as follows :

" 36. Other deductions.--(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-- . . . .

(iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be ; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head 'Salaries' or to the contributions or to the number of members of the fund.

Section 43 contains definitions of certain terms relevant to income from profits and gains of business or profession. Clause (2) thereof defines the expression "paid". Section 43, so far as it is relevant reads :

43. Definitions of certain terms relevant to income from profits and gains of business or profession.--

In sections 28 to 41 and in this section, unless the context otherwise requires-- . . . .

(2) 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'Profits and gains of business or profession'. "

The effect of section 43(2) is to give the meaning assigned by it to the word "paid" in all places in sections 28 to 41 of the Act wherever it occurs "unless the context otherwise requires". This word appears in section 36(1)(iv) of the Act. It has, therefore, to be understood to mean what is conveyed by the definition contained in section 43(2) of the Act. There is nothing in the subject or context which requires otherwise or a departure from the meaning conveyed by the definition. On the other hand, a conjoint reading of section 36(1)(iv) and section 43(2) of the Act makes it abundantly clear that the term "paid" appearing in section 36(1)(iv) of the Act means, not only "actually paid" but also "incurred according to the method of accounting upon the basis of which the profits and gains are computed under the head "Profits and gains of business or profession".

There is no dispute in this case about the fact that the assessee was following the mercantile system of accounting. The further uncontroverted factual position is that a liability of Rs. 1,49,708 was incurred by the assessee during the previous year in respect of contribution to the approved superannuation fund. The entitlement of the assessee to deduction has not been challenged on the ground of non-fulfilment of any of the conditions of section 36(1)(iv) of the Act. The only ground on which the clam of the assessee has been rejected by the Income-tax Officer is that the word "paid" occurring in section 36(1)(iv) of the Act has to be construed as "paid" in the ordinary sense of the term and not in the sense set out in clause (2) of section 43 of the Act. We do not find any merit in this stance of the Revenue which goes counter to the plain language of the statute. As stated earlier, "paid" occurring in section 36(1)(iv) of the Act has to be given the same meaning as has been assigned to it by the Legislature in section 43(2) of the Act unless the context otherwise requires. There is nothing in the context in which it occurs in section 36(1)(iv) of the Act to require otherwise. Situated thus, we are of the clear opinion that the Tribunal was right in holding that the meaning of the word "paid" used in section 56 in connection with the contribution towards approved superannuation fund is the one given to it by section 43(2) of the Act. Accordingly, we answer question No. 3 in the affirmative and in favour of the assessee.

In view of the above answer to question No. 3, question No. 4 which is consequential has also to be answered in the affirmative and in favour of the assessee. It is answered accordingly.

This reference is answered accordingly.

In view of the facts and circumstances of the case, we direct the Revenue to pay the sum of Rs. 750 to the assessee as costs.

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