Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the provision of Rs. 50,000 made by the assessee towards the Employees’ State Insurance contribution was an allowable deduction in computing the total income of the assessee for the asst. yr. 1980-81 ?

Counsel Appeared

Murthy, for the Revenue : V. Venkataramana, for the Assessee

V. ANJANEYULU, J.:

This reference arising under the IT Act, 1961 (for short “the Act”), relates to the asst. yr. 1980-81. It is made at the instance of the CIT by the Tribunal. The question referred for the consideration of this Court is :

“Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the provision of Rs. 50,000 made by the assessee towards the Employees’ State Insurance contribution was an allowable deduction in computing the total income of the assessee for the asst. yr. 1980-81 ? “

The assessee is a company incorporated under the Companies Act. For the asst. yr. 1980-81, the assessee claimed by way of deduction provision of Rs. 50,000 on account of the Employees’ State Insurance. It was pointed out that the assessee was disputing that it was not liable to pay the Employees’ State Insurance. The Employees’ State Insurance Department however held the assessee to be liable and served a demand notice on January 18, 1977, demanding a sum of Rs. 1,10,349 for the period April 19, 1975, to July 19, 1977. The assessee also pointed out that an appeal against the aforesaid claim of the Employees’ State Insurance Department was filed in the Employees’ Insurance Court and by its judgment dated January 28, 1978, the assessee’s claim was accepted by the Employees’ Insurance Court. Even so, the Employees’ State Insurance Department filed an appeal in the High Court against the judgment and order dated January 28, 1978, of the Employees’ Insurance Court so that the dispute regarding the assessee’s liability continued to exist.

As the question regarding liability was not finally decided, the assessee claimed that, in connection with the previous year relevant to the asst. yr. 1980-81, the statutory liability on account of the Employees’ State Insurance on the basis of the demand earlier raised by the Department, was Rs. 50,000 and deduction of the same was claimed. The ITO declined to allow it on the short ground that there was no existing liability. The assessee carried the matter in appeal to the CIT (A) who upheld the ITO’s view and rejected the assessee’s claim. The assessee, thereupon, filed a further appeal to the Tribunal. The Tribunal allowed the assessee’s claim. Aggrieved by that, the present reference is sought by the CIT.

There is no dispute before us that the assessee maintained accounts on the mercantile system. It is also not in dispute that if the assessee was liable under the Employees’ State Insurance Act, the provision of Rs. 50,000 made by the assessee would be adequate. The short question canvassed before us by learned standing counsel for the Revenue is that the Employees’ Insurance Court had already allowed the assessee’s claim that it was not liable to pay the contribution. Although that decision was not accepted by the Employees’ State Insurance Department and was carried in appeal to the High Court, the fact would remain that the declaration given by the Employees’ Insurance Court regarding non-liability would prevail until a contrary view is taken by the superior appellate authority. In that view, learned standing counsel contends that the assessee cannot successfully claim deduction of the provision made for the assessment year under consideration.

5 .We are unable to agree. So long as an appeal is pending (as admittedly, it is in this case), it must be said that the matter is at large and no finality was reached. This principle directly flows from the decision in the case of J. K. Synthetics Ltd. vs. O. S. Bajpai, ITO 1975 CTR (All) 256: (1976) 105 ITR 864 (All) and also from the decision of the Supreme Court in CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC)179:(1986) 161 ITR 524 (SC). We are also fortified in this view by the decision of this Court in CWT vs. Amatul Kareem (1980) 19 CTR (AP) 154:(1981) 127 ITR 549 (AP). So long as it is not denied that the provision of Rs. 50,000 represents a correct provision under the Employees’ State Insurance Act concerning the statutory liability relating to the assessment year under consideration, it is not possible to resist the assessee’s claim for deduction in view of the system of accounting employed by them. If, eventually, the assessee succeeds finally and no liability under the Employees’ State Insurance Act is affirmed, then, it will be open to the Department to invoke the provision of s. 41(1) of the IT Act and bring to assessment the amount or amounts allowed as deduction remitted in appeal. Having regard to the above, we consider the Tribunal to be wholly justified in the view it has taken that the provision of Rs. 50,000 made by the assessee towards the Employees’ State Insurance contribution was an allowable deduction. The question referred is answered in the affirmative that is in favour of the assessee and against the Revenue.

No costs.

[Citation :182 ITR 358]