2010 (9) TMI 85 - HC - Income Tax

Tribunal lacks jurisdiction for deductions in different assessment years

Marubeni India P. Ltd. Versus. Commissioner of Income-tax

Marubeni India P. Ltd. Versus. Commissioner of Income-tax - [2010] 328 ITR 306 Issues Involved:1. Jurisdiction of the Tribunal to direct deductions in a different assessment year.2. Deductibility of incentives paid to expatriate employees.3. Commercial expediency as a ground for deduction.4. Contractual liability for payment of incentives.Detailed Analysis:1. Jurisdiction of the Tribunal to Direct Deductions in a Different Assessment Year:The primary issue was whether the Tribunal had the jurisdiction to direct that the amount of Rs. 2,78,28,161 paid by the appellant as incentives to expatriate employees be allowed in the year of payment (assessment year 1999-2000) while considering appeals for assessment years 1997-98 and 1998-99. The Tribunal, while dismissing the appellant's claim for these years, opined that the principle of commercial expediency might allow the deduction in the year of payment, i.e., 1999-2000. However, the Tribunal did not issue a direction for the deduction in the assessment year 1999-2000, citing its limited jurisdiction to the subject matter of the appeal before it, which was confined to the assessment years 1997-98 and 1998-99.2. Deductibility of Incentives Paid to Expatriate Employees:The appellant claimed deductions for the amounts paid as incentives to expatriate employees in the assessment years 1997-98 and 1998-99. The Assessing Officer disallowed the claim, stating that the liability was contingent and unascertained at the relevant time, and the payment was actually made in the financial year 1998-99, relating to the assessment year 1999-2000. The Commissioner of Income-tax (Appeals) upheld this decision, stating that the payments were actually discharges of statutory liability under section 201 of the Income-tax Act, 1961, disguised as incentives.3. Commercial Expediency as a Ground for Deduction:The appellant argued that the payments were made on the grounds of commercial expediency, citing the Supreme Court judgment in CIT v. Chandulal Keshavlal and Co. [1960] 38 ITR 601. The Tribunal, however, concluded that the principle of commercial expediency did not apply to the assessment years 1997-98 and 1998-99, as there was no pre-existing liability. It held that this argument could only be raised in the year of actual payment, i.e., the assessment year 1999-2000.4. Contractual Liability for Payment of Incentives:The appellant contended that there was an oral arrangement with the expatriate employees for the payment of incentives. However, the Tribunal found no evidence of any enforceable contractual liability. The Tribunal noted that it was difficult to believe that the appellant, well-advised in tax matters, would not claim such substantial amounts in the original returns if there was a genuine liability. The Tribunal concluded that the payments were made under pressure from the Income-tax Department, not due to any contractual obligation.Conclusion:The High Court upheld the Tribunal's decision, agreeing that the Tribunal had no jurisdiction to direct deductions for a different assessment year. The deductions could not be claimed for the assessment years 1997-98 and 1998-99, as there was no contractual liability, and the principle of commercial expediency was only applicable in the year of payment. The appeal was dismissed, and no costs were awarded.