High Court Of Madras
CIT vs. Kattabomman Transport Corporation Ltd.
Section 37(1)
Mrs. Prabha Sridevan & K. K. Sasidharan, JJ.
Tax Case Appeal No. 206 of 2004
20th October, 2008
Counsel appeared :
Ms. Pushya Sitaraman, for the Appellant : J. Balachandran for S. Sridhar, for the Respondent
JUDGMENT
Mrs. Prabha Sridevan, J. :
The question of law that has been raised in this fax case is as follows :
“Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the amount set aside as a contribution to the assessee’s own insurance fund to meet future contingent liability of accidents is allowable as a revenue expenditure ?”
This tax case is squarely covered by the decision in CIT vs. Pallavan Transport Corporation Ltd. (1997) 137 CTR (Mad) 609 : (1998) 230 ITR 288 (Mad). In fact, that case arose out of ITA Nos. 1257 and 1258/Mad/1978-79 based on which, the order impugned herein has been passed dismissing the appeal of the Revenue.
The assessee here is Kattabomman Transport Corporation which is bound by law, as per s. 146 (3) of the Motor Vehicles Act, to contribute towards the fund to meet the liability towards third party claims. The admitted position is that this amount is contributed on the basis of a number of vehicles owned as on the first day of the financial year and to satisfy the legal requirements. In CIT vs. Pallavan Transport Corporation Ltd. (supra), this Court held that when creating the fund, the transport corporation is fulfilling a statutory obligation and the assessee is not entitled “to ask for deduction of the amount contributed to the fund as admissible revenue expenditure”. This Court considered the various decisions cited before it and also Associated Power Co. Ltd. vs. CIT (1996) 130 CTR (SC) 393 : (1996) 218 ITR 195 (SC) wherein the Supreme Court held that when the provisions of the Electricity Supply Act required the electricity company to set apart a contingency reserve, these monies in the contingency reserve belong to the electricity company and the said amount must be taken into account while determining the business profits of the assessee. Following this, this Court held that account of the assessee in this fund are maintained in the books of accounts belonging to the assesses and that the fact that “the assessee for fulfilling a statutory obligation imposed upon it by the Motor Vehicles Act created the fund and contributed the amount which is payable on the happening of an event, would not entitle the assessee to ask for deduction of the amount contributed to the fund as admissible revenue expenditure”. Therefore, this question must be answered in favour of the Revenue. However, the learned counsel for the assessee submitted that on facts of this case would differ and in that relevant year, the assessee had incurred a liability of Rs. 51,12,172 which represented the actual outgoing of the year by way of insurance payment and the assessee had taken into account Rs. 28.88 lakhs which was in the fund and had shown only the balance as actual payment. Therefore, what is claimed is deduction of actual revenue expenditure.
The learned counsel for the assessee further submitted that if the asses- see had claimed only the differential between Rs. 51,12,172 and Rs. 28.88 lakhs, and claimed only a sum of Rs. 22,24,712 as actual expenditure, then the assessee would be actually denied the deduction of a sum of Rs. 28 lakhs even on actual payment made.
In fact, even before the CIT(A) it was argued that if Rs. 28.88 lakhs was not considered as admissible, the entire Rs. 51.29 lakhs was allowable as actual payment towards the real liability, and the CIT also held that “thus it is obvious that either the amount debited in the profit and loss account or what is actually paid is admissible as deduction”.
Therefore the assessee will be entitled to deduct what it has actually paid towards insurance. Therefore, the question of law is answered in favour of the Revenue. The matter is sent back to the AO who shall decide how much was actually allowable towards expenditure. The appeal allowed as above.
[Citation : 324 ITR 71]
