Delhi H.C : duty drawback relating to new industrial undertaking is eligible for deduction while computing book profit under MAT

High Court Of Delhi

CIT Vs. Ranbaxy Laboratories Ltd.

Assessment Year : 2001-02

Section : 43B,80-IA

A.K. Sikri And M.L. Mehta, JJ.

ITA Nos. 377 Of 2010

March  17, 2011

JUDGMENT

A.K. Sikri, J. – In this appeal the following questions of law are proposed by the Revenue :

“(a) Whether the learned Income-tax Appellate Tribunal erred in law and on the merits in holding that duty drawback relating to new industrial undertaking is eligible for deduction while computing book profit under section 115JA of the Income-tax Act, 1961 ?

(b) Whether the learned Income-tax Appellate Tribunal erred in law and on the merits in holding that duty drawback is to be included while computing deduction under section 80-IA of the Income-tax Act, 1961 ? 

(c) Whether the learned Income-tax Appellate Tribunal erred in law and on the merits in deleting the addition on account of provision for pension ?

(d) Whether the learned Income-tax Appellate Tribunal erred in law and on the merits by holding that disallowance of provision for pension could not be disallowed under section 43B of the Income-tax Act, 1961 ?”

2. Insofar as question No. (a) is concerned, after reading the order of the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal, we found that it does not arise for consideration in this appeal. The Tribunal vide the impugned order has decided the appeals of the respondent-assessee pertaining to the assessment year 1999-2000 and 2001-02. In this appeal we are concerned with the assessment year 2001-02. From the order of the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal, we find that this question of law pertains to the assessment year 1999-2000 and not this year.

3. Insofar as question No. (b) is concerned, Mr. Syali, learned senior counsel appearing for the respondent/assessee fairly concedes that this issue has to be decided in favour of the Revenue in view of the judgment of the Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218 (SC).

4. Questions Nos. (c) and (d) relate to the provision for pension made by the assessee. The assessee is following the mercantile system of accounting. It is having superannuation scheme for its employees. As per the assessee, in order to retain managerial employees it also introduced a pension scheme for such managerial employees which is over and above the benefits available under the superannuation scheme of the company. This scheme was non-funded and applicable to all management employees. The liability on this account for the year in question amounting to Rs.3,61,63,024 was provided following AS-15 based on actuarial valuation. For making this provision, the assessee sought deduction thereof. The Assessing Officer disallowed the same by invoking the provisions of section 43B(b) of the Act on the ground that even if it was an ascertained liability, the deduction could not be allowed in the absence of contribution to the pension fund. The Commissioner of Income-tax (Appeals), however, reversed the aforesaid decision of the Assessing Officer. Section 43B(b) of the Act reads as under :

“43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-. . .

(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.”

5. Section 43B(b) is inserted with a view not to allow certain deduction unless actual payments are made in that behalf. The question for consideration is as to whether the provisions of clause (b) of section 43B of the Act are applicable in the instant case. As stated above, the assessee had created the provision for pension by introducing a pension scheme over and above the benefits available under the superannuation scheme. Whether such a provision would be covered by any of the funds stipulated in clause (b), would be the causal. Admittedly, the creation of the aforesaid provision for pension can neither be treated as contribution to any provident fund or superannuation fund or gratuity fund.

6. Ms. Rashmi Chopra, learned counsel for the Revenue, however, argued that it would fall within the expression “any other fund for the welfare of employees” which is specifically stipulated in clause (b). We are unable to accept this submission of the learned counsel for the Revenue. It cannot be denied that section 43B(b) was inserted with a view to disallow certain statutory liabilities which were disputed and not discharged for a long period while availing of tax deduction under the garb of the mercantile system of accounting. It was for this reason that section 43B of the Act provides that these deductions would be admissible on actual payment. We are concerned herewith clause (b) of section 43B of the Act. This clause deals with certain funds available for the benefit of the employees and, therefore, unless the payments are actually made to those employees, the same would not be entitled for deduction. Clause (b) of section 43B of the Act mentions about provident fund, superannuation fund, gratuity fund and is followed by “any other fund for the welfare of the employees”. This last clause thus has to take its colour from the previous clauses and has to be read ejusdem generis.

7. It is stated at the cost of repetition that the intention of the Legislature behind enacting section 43B(b) of the Act was to disallow the statutory liabilities. The Commissioner of Income-tax (Appeals), under these circumstances, was right in his opinion that the Legislature never intended to disallow a claim for an ascertained liability which is computed scientifically in respect of the retiral benefits of its employees and which is not to be contributed to a fund. The Commissioner of Income-tax (Appeals) has supported its view by referring to clause (f) of section 43B of the Act which was inserted, with effect from April 1, 2002. Thus, by adding this clause, the Legislature made it clear that any such provision for leave encashment would ipso facto not be eligible for deduction unless the actual payment is made. For disqualifying a provision for leave encashment, a specific clause had to be inserted by the Legislature as the Legislature was conscious of the fact that this clause would not be covered by the existing clause (b) of section 43B of the Act.

8. We are in agreement with the view of the Commissioner of Income-tax (Appeals) that the pension scheme of the assessee does not envisage any regular contribution to any fund or trust or any other entity. The pension scheme provides that pension would be paid by the appellant to its employees on their attaining the retirement age or resigning after having rendered services for specified years. Thus, where the liability on this account accrues from year to year, the same is payable on retirement/resignation of the eligible employees. In view thereof, the ratio of the judgment of the Supreme Court in Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC) and Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) would clearly get attracted.

9. We, thus, decide these questions of law against the Revenue and in favour of the assessee. As a result, this appeal is allowed in respect of question Nos. (c) and (d).

10. This appeal stands disposed of in terms of the above.

[Citation : 334 ITR 341]

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