Accrued liability for revised wages qualifies as revenue expenditure deductible under Section 37(1) for prior assessment year HC upheld the Tribunal's decision allowing deduction of the assessee's payment of revised salary and dearness allowance to its workmen for AY 1972-73. It ...
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Accrued liability for revised wages qualifies as revenue expenditure deductible under Section 37(1) for prior assessment year
HC upheld the Tribunal's decision allowing deduction of the assessee's payment of revised salary and dearness allowance to its workmen for AY 1972-73. It held that, upon termination of prior awards, an impending liability to enhance service conditions had accrued during the relevant previous year. The board's provision of Rs. 1,00,000 was a prudent recognition of this accrued liability, and though the actual quantified payment of Rs. 76,680 was made after the year-end, it related to services rendered in that year. The expenditure was therefore revenue in nature, incurred wholly and exclusively for earning income, and allowable as a deduction.
Issues involved: The judgment involves determining the allowability of a revenue deduction amounting to Rs. 76,680 in the assessment of the assessee for the accounting period relevant to the assessment year 1972-73.
Summary:
The High Court of Bombay considered a reference u/s 256(1) of the Income-tax Act, 1961, made by the Revenue regarding the deduction of Rs. 76,680 in the assessment year 1972-73. The assessee, an agent for Tata motor vehicles sales, had made a provision of Rs. 1,00,000 in anticipation of liability due to changes in workmen's service conditions. Subsequently, settlements were reached with the trade union, resulting in payments to workmen totaling Rs. 76,680. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the deduction, citing that the liability was not ascertained during the relevant accounting year. However, the Income-tax Appellate Tribunal allowed the deduction, following the principle that the liability accrued during the year under consideration, even though the payment was made in a subsequent year.
Dr. Balasubramanian, counsel for the Revenue, argued that the liability did not accrue until after the relevant previous year, citing the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363. The Court distinguished this argument by stating that the provision made by the assessee for the impending liability indicated the recognition of the accrued liability, which should have been allowed as a deduction. The Court upheld the Tribunal's decision, emphasizing that the payment to workmen was for services rendered during the previous year and was incurred to earn income, thus qualifying for deduction.
In conclusion, the Court answered the question in the affirmative, in favor of the assessee, allowing the deduction of Rs. 76,680.
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