1. Two questions have been referred to us by the Tribunal under section 66(1) of the Indian Income-tax Act, 1922, for our determination at the instance of the Commissioner of Income-tax, Bombay City III Bombay, and those questions run as follows :
'(1) Whether, on the facts and in the circumstances of this case, the sums of Rs. 4,30,000, Rs. 4,21,575, Rs. 3,83,600 and Rs. 3,64,700, representing the contributions to the insurance fund made in accordance with rule 11 of the Corporation Rules in respect of third party risk were admissible as a deduction in computing the income of the assessee for the assessment years 1956-57, 1957-58, 1958-59 and 1959-60, respectively
(2) Whether, on the facts and in the circumstances of this case, the unabsorbed depreciation allowance of the earlier year deemed to be a part of depreciation allowance of the current year under proviso (b) to section 10(2)(vi) of the Act can be set off, unlike other business losses, against income under other heads ?'
2. At the outset, it may be stated that, so far as question No. 2 is concerned, it was conceded by Mr. Joshi, appearing for the revenue, that the same was covered by the decision of the Supreme Court in the case of Commissioner of Income-tax v. Jaipuria China Clay mines (P.) Ltd. : 59ITR555(SC) . In view of this decision, the question will have to be answered in the affirmative in favour of the assessee and the same (question No. 2) is answered accordingly.
3. Turning to the first question, the material facts may be stated. The question relates to the assessment years 1956-57, 1957-58, 1958-59 and 1959-60, the corresponding accounting periods being the financial years ending March 31, 1956, March 31, 1957, March 31, 1958, and March 31, 1959, respectively. The assessee is a corporation established by a notification under the provisions of the Road Transport Corporations Act, 1950, (Central), for the Bombay State. During the aforesaid accounting periods relevant for the foresaid assessment years the assessee made certain contributions to an insurance fund and in particular relating to third party risk. In accordance's with the rules of the Bombay State Road Transport Corporations Rules, 1952, framed in exercise of powers conferred under section 44 of the Road Transport Corporations Act, 1950, the assessee had established an insurance fund by making a contribution of Rs. 155 per vehicle per annum. It appears that in the said insurances fund so established various amounts by way of contributions were made, such as for carriage of goods on hire, for third party risk and for assets including vehicles, and in this reference we are concerned only with those contributions which were made by the assessee to this insurances fund for third party risk. In the four accounting periods relevant to the four assessment years in question, the assessee made contribution of Rs. 4,30,000 (assessment year 1956-57), Rs. 4,21,575 (assessment year 1957-58), Rs. 3,83,600 (assessment year 1958-59), and Rs. 3,64,700 (assessment year 1959-60) to the insurance fund relating to third party risk. In each of these years the assessee claimed a deduction in respect of these contribution so made to the insurance fund relating to the third party risk. The Income-tax Officer disallowed the claim for all these years on the ground that these amounts represented only a provision and they were not ascertained liabilities of the assessee. When the matter was carried in appeals to the Appellate Assistant Commissioner, it was held by the Appellate Assistant Commissioner that these amounts were rightly disallowed because, in his view, the debits to the insurance fund were appreciations of profits after they had been earned. The assessee carried the matter further in appeal to the Appellate Tribunal and the Tribunal held that the portion of contribution referable to the third party insurance was created under the Rules which cast on the assessee a legal obligation and, therefore, was clearly allowable and, hence, the amounts in question were directed to be allowed as a deduction. At the instance of the Commissioner of Income-tax, Bombay City III, Bombay, the first question mentioned at the commencement of the judgment has been referred to us for our opinion.
4. It was not disputed before us that liability to make such contributions to the insurance fund in regard to third party risk was a statutory liability that had been imposed upon the assesses-corporation under the relevant rules that were framed under section 44 of the Road Transport Corporations Act, 1950. Section 44 of the Act confers power upon the State Government, by notification in the official Gazette, to make rules to give effect to the provisions of the Act and in exercise of power so conferred upon the State Government by the aforesaid provision of the Act, the State Government has framed what are called The Bombay State Road Transport Corporations Rules, 1952. Rule 11 of these Rules is material and it runs thus :
'Third party liability fund. - There shall be established and maintained by the Corporation a fund to be called the Third Party Liability Fund in to which shall be paid every year from and out of the revenues of the Corporation such sum as may be directed by the State Government from time to time for meeting any liability, arising out of the use of any vehicle of the Corporation, which the Corporation or any person in the employment of the Corporation may incur to third parties.'
5. It will thus appear clear that under this statutory rule, which has been framed by the State Government under section 44 of the Road Transport Corporations Act, a legal obligation has been cast upon the assesses-corporation to establish and maintain a fund called third party liability fund. The rule also provides that the assesses-corporation shall pay into this fund every year from and out of the revenues of the Corporation such sum as may be directed by the State Government from time to time for meeting any liability arising out of the use of any vehicle of the Corporation. It was not disputed before us that it was in pursuance of this statutory obligation that was cast upon the assesses-corporation that the four amounts in question had been contributed by the assessee to the insurance fund which comprised one of the items, viz., third party risk. Even in the accounts prepared by the assesses-corporation for the aforesaid relevant years these amounts were shown as having been contributed to the insurance fund in relation to the third party risk. It is obvious that any amount due from the Corporation in respect of any claim arising out of accidents by or to the vehicles of the Corporation was required to be paid out of this fund and, in our view, since the contributions were made under a statutory obligation cast upon the assesses-corporation under the statutory rule the same will have to be allowed as a deduction in computing its profits. There is also an additional factor which may be mentioned in this behalf. Under rule 11 the assesses-corporation is called upon to make such contributions to the insurance fund for the purpose of covering third party risk 'from and out of the revenues of the Corporation' and, that being the position under the relevant rule, it is difficult to appreciated how the Appellate Assistant Commissioner took the view that these amounts were in the nature of debits to the insurance fund by way of appropriation of profits after they had been earned. The Tribunal, in our view, was, therefore, right in allowing the deduction claimed by the assesses-corporation in respect of these contributions.
6. If necessary, we may refer to a judgment of this court in the case of Amalgamated Electricity Co. Ltd. v. Commissioner of Income-tax : 97ITR334(Bom) , where also a similar question pertaining to deduction claimed to respect of the contingency reserve and the tariffs and dividends control reserve should be allowed or not, came up for consideration before this court and after considering the provisions of the Electricity (Supply) Act, 1948, particularly Schedule VI, under which the said contingency reserve and the tariff and dividends control reserve were required to be compulsorily made, this court allowed the deduction claimed in respect of such reserves that were created by the assessee in that case. We may point out that one of the reserves that was considered in that case was also required to be created by the assessee-company from out of the revenues of the assessee-company. The ratio of that case of Amalgamated Electricity Co. Ltd. v. Commissioner of Income-tax : 97ITR334(Bom) would be clearly applicable to the question raised before us in this case.
7. Having regard to the above discussion, the question referred to us is answered in the affirmative and in favour of the assessee. There will be no order as to costs.
8. Question answered in the affirmative.