1. The assessee in appeal is B.C. Bose & Co. (P.) Ltd., Calcutta, carrying on the business of Stevedores at the Calcutta Port. The year of assessment involved is 1978-79 for which the previous year ended 30-6-1977.
2. Admittedly, the ITO, in the assessment of the assessee for the year under consideration, has allowed a debit of Rs. 7,56,236.10, in the profit & loss account for the year, on account of 'Workmen Compensation'. The system of accounting of the assessee in the year under consideration, as in the past, is mercantile.
3. Later on, the Commissioner. West Bengal-TI, Calcutta, being of the opinion that the said assessment was erroneous being prejudicial to the interest of the revenue, inasmuch as the liability of the assessee in the matter of the compensation under the Workmen's Compensation Act, 1923 ('the 1923 Act'), to the extent of Rs. 7,56,236.10 had not accrued in the year under consideration. He, accordingly, issued a show-cause notice as to why an order under Section 263 of the Income-tax Act, 1961 ('the Act'), as the circumstances justify including an order, or enhancing, or modifying the assessment order or cancelling the assessment and the making of the fresh assessment, be not made. After cause was shown, the Commissioner after referring to the Scheme of the 1923 Act, as was clear from Sections 2, 3, 4, 4A, 10, 19, 22 and rules 20, 21, 23 to 28 and 32 of the Workmen's Compensation Rules, 1924, made under Section 32 of the 1923 Act, and negativing the contentions of the assessee to the contrary, has observed in para 9 of the impugned order that "it is impossible to contend that a liability has accrued against the assessee. It is to be noted that an accrued liability is one where there is a specific person to whom the assessee is under an obligation to make a payment of a specific amount, even though payment may be made at a future date. It cannot be contended that an accrued liability arose merely because a claim has been made before the Commissioner in an application by a workman. The utmost that may be said is that at a future date a contingency may arise when the Commissioner under the Workmen's Compensation Act gives his judgment and awards compensation on the claim in favour of the workman, the assessee may be called upon under the law to make payment of such compensation. It is to be noted that even where a claim is entertained by the Commissioner the compensation awarded may not necessarily be the amount claimed. Thus unadmitted and contested claims are usual items in respect of which even a provision is not made by debiting the profit & loss account".
4. The Commissioner in para 10 of his impugned order went on to observe as under : If the compensation was in fact payable under the Workmen's Compensation Act, then, notwithstanding the fact that in earlier years the assessee was debiting its accounts only with the actual payments, i.e., on the cash basis, the assessee could have changed its system to the mercantile method of providing for items, in respect of which obligation to pay had arisen during the accounting year. The ITO apparently under the bonafide impression that the amounts were payable as made out in the statement had allowed the provision. However, a perusal of the facts relating to these provisions and the particular fact, that has specifically come to notice during the course of the proceedings for this assessment year, that the assessee has debited its profit & loss account with all items of claims preferred by the workmen before the Commissioner under the Workmen's Compensation Act, which had been duly forwarded by that Commissioner to the assessee, although the assessee had not accepted any of these claims even in part, and having regard to the Scheme of the Workmen's Compensation Act, it has to be stated that there being no liability of a type which mercantile system of accountancy would have required the assessee to provide before the profits are ascertained, one has to hold that the debit is not proper and cannot be admissible while computing the assessable profits. In view of this it is clear that the assessment order is erroneous, in so far as it failed to disallow the sum of Rs. 7,56,236, being the debit in respect of some claims contested by the assessee. It is prejudicial to the interest of revenue.
He, therefore, directed the ITO to recompute the total income of the assessee by disallowing the debit to the extent of Rs. 7,56,236 and to take all consequential steps.
5. Aggrieved by the said decision of the Commissioner, the assessee had filed the present appeal. Dr. Debi Pal, the learned counsel for the assessee, took us through the provisions of the Dock Workers (Regulation of Employment) Act, 1948, and the Scheme framed by the Central Government under Sub-section (1) of Section 4 of that Act. He also took us through the decision of the Supreme Court in Visakhapatnam Dock Labour Board v. Stevedores Association AIR. 1970 SC 1626, wherein the said Act and the Scheme have been discussed at length.
6. In the light of the aforesaid enactment, the Scheme and the decision of the Supreme Court, it was urged by Dr. Pal that the assessee being a Stevedore working at Calcutta port, has registered himself as a registered employer with the Calcutta Dock Labour Board. The workers who were engaged by the assessee, in his capacity as a Stevedore for working at different ships, while they were in Calcutta Dock, could not be anybody else than the registered dock workers. These dock labour workers, as is clear from the aforesaid Act, the Scheme and the decision of the Supreme Court, are the employees of the assessee-employer, after the former are allocated by the Calcutta Dock Labour Board to work for the assessee for loading and unloading of the ships and were so working under the assessee-employer. As these dock labour workers are the employees of the assessee-employer, the latter is liable to pay compensation to the former, in case a personal injury is caused to a workman by an accident arising out of, and in the course of, their employment with the assessee-employer. The said liability, according to Dr. Pal, to pay compensation, arises since the personal injury is caused to the workman, under the 1923 Act. According to him, the Commissioner should have held that the said liability arose under Section 3 of the 1923 Act and the other provisions of the said Act did not have the effect of suspending liability of the assessee-employer to the compensation payable. According to Dr. Pal, the Commissioner has failed to appreciate properly the true scope and effect of the relevant provisions of the 1923 Act and further failed to appreciate the position, i.e., the accrual of the liability under Section 3 of the said Act. In the present case, therefore, the liability to pay compensation arose in respect of the said sum of Rs. 7,56,236 in the year under consideration, because of the claims made by the workmen, working as the employees of the assessee, made under the 1923 Act, pursuant to the personal injury incurred by them during and in the course of the said employment. The system of accounting maintained by the assessee was mercantile. In support of his arguments, Dr. Pal has relied on the decision of the Supreme Court in the case of Pratap Narayan Deo v. Shrinivas Sapata AIR 1970 SC 222, as also the decision of the Bombay High Court in the case of Margardita Gomes v. Mackinnon Mackenzie (P.) Ltd. AIR 1968 Bom. 328. Dr. Pal further urged that the quantification of the compensation payable in accordance with Section 19 of the 1923 Act will not postpone the accrual of the liability under the 1923 Act, because the liability of the assessee to pay compensation which was statutory arose in the year, since the personal injury was caused to the workmen by accident. In support of these arguments Dr.
Pal has relied on the following decisions : Calcutta Co. Ltd. v. CAT  37 ITR 1 (SC) and Kedarnath Jute Mfg. Co. Ltd. v. CIT  82 ITR 363 (SC).
7. These arguments of Dr. Pal have been strongly controverted by the senior departmental representative, Shri S. Majumdar, who took us through the decision of the Commissioner under Section 263 of the Act.
Relying on the said order, Shri Majumdar has strenuously urged that the liability of the assessee under the 1923 Act was contingent and not in praesenti until that liability was decided upon and quantified under Section 19 of the 1923 Act. The Commissioner was, therefore, correct in holding that under the provisions of the 1923 Act and the rules there-under, no liability whatever accrued against the assessee incase of injury sustained by the employees of the assessee in the course of employment, if the assessee does not admit his liability to pay any compensation, or if the Commissioner under the 1923 Act had not given his award under Section 19 of the 1923 Act.
8. We have given consideration to the above arguments. As already stated, the assessee-company is carrying on the business of Stevedores at the Calcutta Dock. As required by the Dock Workers (Regulation of Employment) Act, 1.948, and the Scheme made thereunder for the Calcutta Dock Labour Board, the assessee-company has to function as stevedores at the Calcutta Docks and has been registered with the said Board as a registered employer. Under the said Scheme, the assessee, as a registered employer, is prohibited from engaging workers on dock works, unless they are registered dock workers. Persons other than registered employers are also prohibited from employing any worker on dock work.
Under the aforesaid Scheme for the Calcutta Dock Labour Board, it shall be an implied condition of contract between a registered worker (whether on reserve pool or on monthly register) and a registered employer that the rates of wages and allowances, for overtime hours of work shall be such as may be prescribed by the Board for each category of workers and the fixation of wage periods, etc., shall be in accordance with the provisions of the Payment of Wages Act, 1936. The said Scheme also deals with disciplinary procedure followed in taking action against the registered employer and registered dock workers and with termination of employment, etc. The said Scheme also provides for the cost of operating the Scheme being defrayed by payment made by the registered employer to the Board and for the registered employer paying to the Board amount by way of levy in respect of reserve pool workers, when paying the gross amount of wages due from them under the Scheme, besides provision for Provident Fund and Gratuity and the Dock Workers' Welfare Fund.
9. This takes us to the question as to the exact type of relationship between the stevedores, like the assessee before us, and dock labour workers, when the latter is working for the former under the aforesaid Dock Workers (Regulation of Employment) Act, 1948, and the Scheme made thereunder for the Calcutta Dock Labour Board. We find after hearing both the learned counsel for the assessee, Dr. Pal, and the departmental representative, that a similar question had come up for the consideration of the Supreme Court in Stevedores Association (supra). In that case, the Supreme Court, after elaborately going into the various matters dealt with under the aforesaid Act and the Scheme, came to the conclusion that ". . . it is evident that the Board is a statutory body charged with the duty of administering the Scheme, the object of which is to ensure greater regularity of employment for dock workers and to secure that an adequate number of dock workers are available for the efficient performance of dock work. The Board is an autonomous body, competent to determine and prescribe the wages, allowances and other conditions of service of the dock workers. The purport of the Scheme is that the entire body of workers should be under the control and supervision of the Board. The registered employers are allocated monthly workers by the Administrative Body and the Administrative Body supplies, whenever necessary, the labour force to the Stevedores from the Reserve Pool. The workmen who are allotted to the registered employers are to do the work, under the control and supervision of the registered employers, and to act under their directions. The registered employers pay the wages due to the workers to the Administrative Body and the latter, in turn, as agent of the registered employers, pay them over to the concerned workmen. All these circumstances, in our opinion, prima facie, establish that the Board cannot be considered to be the employer of the dock labour workmen. In fact, various provisions referred to in the Scheme clearly show that the registered employer to whom the labour force is allotted by the Board is the employer whose work of loading or unloading of ships is done by the dock workers allotted to them".
Respectfully following the ratio of the aforesaid decision of the Supreme Court, we hold that the assessee-company to whom the labour force was, in the year under consideration, allotted by the Calcutta Dock Labour Board was the employer, whose work of loading and unloading of ships was done by the dock workers and that the relationship of employer-employee existed between the assessee-company and the dock workers during the said period, when the latter were undertaking the work of loading and unloading of ships for and on-behalf of the former, i.e., the assessee-company.
10. During the period of the aforesaid relationship of employers and employees between the assessee-company and the dock workers, if the latter sustained any personal injury in the course of the employment, the assessee by virtue of the provisions of the 1923 Act became liable to pay compensation in accordance with the provisions of Chapter II of the Act, except in exempted cases, which is not the position in the present case. There is no dispute in this behalf. The dispute between the parties is as to when that liability accrues for the purposes of the assessee claiming it as a deduction under the Act, when it follows mercantile system of accounting. It may be added, at this stage, that the assessee in the year prior to the accounting period relevant to the assessment year 1977-78, was claiming deduction in respect of the said liability on payment basis. It was only in the accounting period relevant to the assessment year 1977-78 that the assessee made the claim for deduction on the basis of the provisions made by it (the assessee-company) in its books, on the basis of the claims for compensation by its aforesaid dock workers-employees forwarded by the Commissioner under the 1923 Act. The claim of the assessee in that behalf was, in the said year under consideration, allowed by the ITO.The Commissioner for the reasons stated by him in the impugned order under Section 263, has observed that corrective action for that year is called for.
11. To decide the question posed by us in the beginning of the preceding paragraph 9, it will be advantageous at this stage, to refer to the Scheme of the 1923 Act. Section 3 of the Act deals with the employer's liability for compensation. Sub-section (1) of that section provides that the employer shall be liable to pay compensation, if 'personal injury is caused to a workman by accident arising out of and in the course of his employment'. Section 3(5) of the Act is not attracted in the present case, as none of the workmen-employees concerned, of the assessee, claimed compensation against the assessee in the year under consideration and had not instituted a suit in civil court for recovery of damages, in respect of the injury so caused.
Section 4(1) of the Act prescribes the amount of compensation payable for the injury sustained by' a workman, which is to be calculated on the basis stated therein. Section 4A of the 1923 Act is headed 'Compensation to be paid when due and penalty for default'. It reads as under : (1) Compensation under Section 4 shall be paid as soon as it falls due ; (2) In cases where the employer does not accept the liability for compensation to the extent claimed, he shall be bound to make provisional payment based on the extent of the liability which he accepts, and such payment shall be deposited with the Commissioner or made to the workman, as the case may be, without prejudice to the right of the workman to make any further claim (3) Where any employer is in default in paying the compensation due under this Act within one month from the date it fell due, the Commissioner may direct that, in addition to the amount of the arrears, simple interest at the rate of 6 per cent per annum on the amount due together with, if in the opinion of the Commissioner there is no justification for the delay, a further sum not exceeding fifty per cent of such amount shall be recovered from the employer by way of penalty.
Section 19(1) of the 1923 Act lays down that if any question arises in any proceedings under the Act, as to whether the liability of any person to pay compensation (including any question as to whether a person injured is or is not a workman) or as to the amount or duration of compensation (including any question as to the nature or extent of disablement), the question shall, in default of agreement be settled by the Commissioner. Sub-section (2) of that section lays down that no Civil Court shall have jurisdiction to settle, decide, or deal with any question which is by, or under this Act, required to be settled, decided, or dealt with by a Commissioner or to enforce any liability incurred under this Act. We next come to Section 22. Sub-section (1) thereof provides that no application for the settlement of any matter by a Commissioner (other than an application by a dependant or dependants for compensation) shall be made unless and until some question has arisen between the parties n connection therewith, which they have been unable to settle by agreement. Sub-section (2) refers to the form in which the application should be made to the Commissioner and the particulars which may be prescribed to be furnished, etc. Rules 20 to 28 and 32 of the Workmen's Compensation Rules, 1924 made under Section 32 of that Act lay down the procedure to be followed regarding the manner in which the application for compensation under the Act has to be preferred by the workmen, the production of documents when the application for relief is based upon a document, examination of the applicant, summary disposal of application, preliminary enquiry into application and notice to opposite party, appearance and examination of the opposite party, framing of the issues and the judgment. It is in the light of this Scheme that we have to decide as to whether the liability, regarding compensation claimed by the workmen from the assessee-employer in the year under consideration, arises when the claims on that behalf are preferred by the workmen to the Commissioner under the 1923 Act, as is the case of the assessee-employer before us, or the said liability crystallised only when the dispute in the matter of the compensation claimed, as is in the present case, the assessee having denied its liability to accept the claims, made by the workmen, totalling Rs. 7,56,236, is settled by the Commissioner, as is the case of the Commissioner in the impugned order.
12. To decide the above point at issue, we will first refer to the decision of the Bombay High Court in the case of Margardita Gomes (supra) The facts in that case are that one Santoline Fernandes was employed by Mackinnon Mackenzie & Co. (P.) Ltd. on their vessel 'M.V.Pandua' on 4-5-1960. In the course of his employment he suffered, while removing certain articles in the store-room of the ship, injury to his eyes by chilly powder. He washed his eyes and to some extent he felt some relief. But in about 4 to 5 days' time, a film developed in the eyes. The Chief Officer had no medicine for the eyes. As Kobe in Japan, the master of the ship took him to a Japanese doctor. At Ure he was taken to a hospital. From there when the ship reached Yokohoma he was taken to a hospital and an operation was performed. The petitioner remained in the hospital for 6 days. He was then transferred to a cargo ship 'S.S. Umaria' belonging to the respondents and brought to Bombay.
He then gave notice of the accident because permanent defects developed in his eyes and then he made the application for award of compensation, against the respondents, claiming a sum of Rs. 5,600. This application of the applicant was resisted by the respondent. In the appeal, the Bombay High Court held that the liability to pay compensation is created immediately on the accident occurring to the workman suffering injury and must amount to a debt payable to the workman.
13. We now come to the other decision, i.e., of the Supreme Court, relied upon by the learned counsel for the assessee, Dr. Pal, in the case of Pratap Narayan Deo (supra). The appellant over there was the proprietor of two cinema halls in Jaypore, Distt. Koraput, Orissa. The respondent was working as a carpenter for doing some ornamental working in a cinema hall of the appellant on 6-7-1968, when he fell down, and suffered injuries, resulting in the amputation of his left arm from the elbow. He served a notice on the appellant dated 11-8-1968 demanding payment of compensation as his regular employee. The appellant sent a reply dated 21-8-1968 stating that the respondent was a casual contractor, and that the accident had taken place solely because of his own negligence. The respondent than made a personal approach for obtaining the compensation, but to no avail. He, therefore, made an application to the Commissioner for Workmen's Compensation, stating that he was a regular employee of the appellant, his wages were Rs. 120 per month, he had suffered the injury in the course of his employment and was entitled to compensation under the 1923 Act. Notice of the application was served on the appellant calling upon him to show cause why penalty to the extent of 50 per cent and interest at 6 per cent per annum should not be imposed on him under Section 4A of the 1923 Act, on the amount of compensation payable by him because of the default in making the payment of the compensation. The appellant contested the claim of the respondent on the ground as already stated above, and on a further ground that the Commissioner under the 1923 Act had no jurisdiction to entertain and adjudicate on the claim. He filed a memorandum of agreement on 10-4-1969 accepting the liability to pay compensation for a sum which was found by the Commissioner to be so grossly inadequate that he refused to register it. The Commissioner, thereafter, held in his order, dated 6-5-1969, that the injury had resulted in the amputation of the left arm of the respondent above the elbow ; that the respondent was a carpenter by profession and by loss of his left hand above the elbow he has evidently been rendered unfit for the work of carpenter as the work of carpentry cannot be done by one hand only. He, therefore, adjudged him to have lost 100 per cent of his earning capacity. On that basis, he calculated the amount of compensation at Rs. 9,800 and ordered the payment of penalty to the extent of 50 per cent together with (sic) points agitated by the appellant before the Supreme Court was that the Commissioner committed a serious error of law in imposing a penalty on the appellant under Section 4A(3) of the 1923 Act, as the compensation had not fallen due until it was settled by the Commissioner under Section 19 by his impugned order dated 6-5-1969. This stand of the appellant was negatived by the Supreme Court by observing as under : 7. Section 3 of the Act deals with the employer's liability for compensation. Sub-section (1) of that section provides that the employer shall be liable to pay compensation if 'personal injury is caused to a workman by accident arising out of, and in the course of, his employment'. It was not the case of the employer that the right to compensation was taken away under Sub-section (5) of Section 3 because of the institution of a suit in a Civil Court for damages, in respect of the injury, against the employer or any other person. The employer, therefore, became liable to pay the compensation as soon as the aforesaid personal injury was caused to the workman by the accident which, admittedly, arose out of and in the course of the employment. It is, therefore, futile to contend that the compensation did not fall due until after the Commissioner's order dated May 6, 1969 under Section 19. What the section provides is, that if any question arises in any proceeding under the Act as to the liability of any person to pay compensation, or as to the amount, or duration of the compensation, it shall in default of an agreement, be settled by the Commissioner. There is, therefore, nothing to justify the argument that the employer's liability to pay compensation under Section 3, in respect of the injury, was suspended until after the settlement contemplated by Section 19. The appellant was thus liable to pay compensation as soon as the aforesaid personal injury was caused to the respondent, and there is no justification for the argument to the contrary.
8. It was the duty of the appellant under Section 4A(1) of the Act to pay the compensation, at the rate provided by Section 4, as soon as the personal injury was caused to the respondent. He failed to do so. What is worse, he did not even make a provisional payment under Sub-section (2) of Section 4 for, as has been stated, he went to the extent of taking the false pleas that the respondent was a casual contractor and that the accident occurred solely because of his negligence. Then there is the further fact that he paid no need to the respondent's personal approach for obtaining the compensation.
It will be recalled that the respondent was driven to the necessity of making an application to the Commissioner for setting the claim, and even there the appellant raised a frivolous objection as to the jurisdiction of the Commissioner and prevailed on the respondent to file a memorandum of agreement settling the claim for a sum which was so grossly inadequate that it was rejected by the Commissioner.
In these facts and circumstances, we have no doubt that the Commissioner was fully justified in making an order for the payment of interest and the penalty.
14. The aforesaid two decisions relied upon by the learned counsel for the assessee, Dr. Pal, therefore, establish that in the case of personal injury caused to a workman by an accident, which arises out of, and in the course of, his employment, unless the right to compensation is taken away under Sub-section (5) of Section 3, which is not the position in the present case, the employer becomes liable to pay compensation as soon as the aforesaid personal injury is caused to the workman. Section 19 only provides for settlement by a Commissioner of any question regarding liabilities of any person to pay compensation, or duration of compensation in default of any agreement, if any such question arises in any proceedings under the Act. That section does not have the effect of suspending the liability of an employer to pay the compensation under Section 3 till after the settlement contemplated under Section 19. It is the duty of the employer to pay compensation under Section 4A(1) of the 1923 Act at the rate provided in Section 4, as soon as the personal injury is caused to the workman. That being the position, as held by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. (supra), the assessee in view of its following the mercantile system of accounting, was justified in making provision in its books for the year under consideration in respect of the liability of its towards its workmen, pursuant to their claims against it under the 1923 Act, totalling Rs. 7,56,236, even though that liability could not be enforced till the quantification was effected consequent to the awards by the Commissioner under Section 19 of the 1923 Act, irrespective of the fact that the assessee in the proceedings before the Commissioner was contesting its liability towards its said workmen-employees, that liability did not cease to be a liability, because the assessee was contesting those proceedings before the Commissioner. We, therefore, on the facts and in the circumstances of the case and on the above discussions, hold that the liability of the assessee, in respect of the aforesaid amount of Rs. 7,56,236 had accrued against the assessee in the year under consideration, pursuant to the claims made by the workmen against it before the Commissioner under the 1923 Act.
16. S.P.A. No. 12 (Cal.) of 1981 - In view of our above decision, the stay petition by the assessee has become infructuous and is hereby rejected.