1988 (3) TMI 3 - HC - Income Tax

Court upholds deduction of Employees' State Insurance provision for 1980-81 assessment year, emphasizes statutory compliance.

The High Court of Andhra Pradesh ruled in favor of a company in a case involving the deductibility of a provision made towards Employees' State Insurance ... Accounting, Business Expenditure Issues involved: Interpretation of provision for Employees' State Insurance contribution as allowable deduction under Income-tax Act for assessment year 1980-81.Summary:The High Court of Andhra Pradesh considered a reference under the Income-tax Act, 1961 regarding the deductibility of a provision of Rs. 50,000 made by a company towards Employees' State Insurance contribution for the assessment year 1980-81. The company, incorporated under the Companies Act, disputed its liability to pay the Employees' State Insurance, despite a demand notice from the department. An appeal was filed by the company in the Employees' Insurance Court, which ruled in favor of the company. However, the Employees' State Insurance Department appealed this decision in the High Court, leading to a continued dispute over the liability.The Income-tax Officer initially rejected the deduction claimed by the company, stating there was no existing liability. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal allowed the company's claim for deduction. The Commissioner of Income-tax then sought a reference on this matter.The court noted that as long as an appeal is pending, the matter remains unresolved, citing legal precedents such as J. K. Synthetics Ltd. v. O. S. Bajpai and CIT v. Hindustan Housing and Land Development Trust Ltd. The court emphasized that the provision of Rs. 50,000 made by the company was in line with the statutory liability under the Employees' State Insurance Act for the relevant assessment year. Therefore, the court upheld the Tribunal's decision that the provision was an allowable deduction, ruling in favor of the company and against the Revenue.In conclusion, the court found the company's claim for deduction justified based on the accounting system employed by them and the unresolved nature of the liability issue. The court highlighted that if the company ultimately succeeds in proving no liability under the Employees' State Insurance Act, the Department could reassess the deducted amount. No costs were awarded in this matter.