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2006 DIGILAW 370 (KAR)

Commissioner of Income Tax v. Amco Batteries

2006-04-10

N.KUMAR, P.VISHWANATHA SHETTY

body2006
JUDGMENT N. Kumar, J.—At the instance of the revenue the following two question of Law are referred for our opinion by the Income Tax Appellate Tribunal under Section 256(1) of the Income Tax Act, 1961 (for short hereinafter referred to as the Act). 1) Whether, on the facts and in the circumstances of the Case, the Tribunal was right in holding that Rs. 30,000/- paid for issue of shares is allowable as a business expenditure? 2) Whether, on the facts and in the circumstances of the Case, the Tribunal was right in holding that ESI contribution of Rs. 4,50,000/- is not to a fund and it does not come under Section 43B(b)? 2. The facts leading to the reference are as under: The assessment year involved is 1984-85. The assessee is an employer. The assessing officer allowed an expenditure of Rs. 30,000/- incurred by the assessee in respect of issue of shares on the ground that it was a capital expenditure. Secondly, a provision made in a sum of Rs. 4,50,000/- towards ESI contribution was also given deduction to. The Commissioner of Income Tax in exercise of power under Section 263 held that the aforesaid two deductions allowed is erroneous and prejudicial to the interest of the revenue within the meaning of Section 263 of the Act and directed to modify the assessment and re-compute the income for the above assessment year after verifying the claims wherever necessary and as per directions given by him. Aggrieved by the said order the assessee preferred appeal to the Tribunal. The Tribunal allowed the appeal of the assessee in part and restored the order of the assessing authority in so far as the aforesaid two deductions are concerned. It is at the instance of the revenue the aforesaid two questions of Law are referred for our opinion. 3. We have heard the Learned Counsel for both the parties. 4. The Supreme Court in the Case of Brooke Bond India Ltd. v. Commissioner of Income Tax 1997 Income Tax Reports vol. It is at the instance of the revenue the aforesaid two questions of Law are referred for our opinion. 3. We have heard the Learned Counsel for both the parties. 4. The Supreme Court in the Case of Brooke Bond India Ltd. v. Commissioner of Income Tax 1997 Income Tax Reports vol. 225 P. 798 dealing with the expenditure incurred by a company in connection with issue of shares has held that the expenditure incurred by a company in connection with issue of shares, with a view to increase its share capital, is directly related to the expansion of the capital base of the company and its capital expenditure, even though it may incidentally help in the business of the company and in the profit-making. Therefore it was held that the expenditure incurred with reference to issue of shares is not allowable deduction. In view of the aforesaid judgment of the Supreme Court the order of the Tribunal holding it otherwise is unsustainable in Law and therefore the first question referred for our opinion is answered in the negative and against the assessee in favour of the revenue. 5. The answer to the second question depends upon the interpretation to be placed on Section 43B of the Act. The said section reads as under: Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- a. xxxx b. Any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. c. xxxx d. xxxx e. xxxx f. xxxx Shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him: A reading of the aforesaid provision makes it very clear that any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees could be deducted only on actual payment. The deduction is allowed only in computing the income referred to in Section 28 of the previous year in which such sum is actually paid by the assessee. In other words, actual payment is a condition precedent for claiming deduction. Therefore, unless the aforesaid sums are paid, as a matter of fact, the employer/assesses is not entitled to claim deductions. 6. In the instant Case, admittedly, the assessee has not paid the said amount to the ESI department. In the accounts, a provision is made for payment of the said amount. Therefore without making the actual payment the assessee was not entitled to the aforesaid deduction. In that view of the matter, the Tribunal was in error in interfering with the order of the Commissioner who had disallowed the aforesaid deduction. For the aforesaid reasons, the second question referred to for our opinion is answered in the negative against the assessee and in favour of the revenue. 7. In terms stated above, this reference is disposed of.