Dipak Kumar Sen, J.
1. The facts found or admitted and the proceedings as on record are, inter alia, that M/s. R. V. Briggs & Co., the assessee, carries on business as chemical analysts. In its business, the assessee employs a number of persons who are divided into five different categories. The assessee follows the mercantile system of accounting.
2. Some time in 1968, a dispute arose between the assessee and its employees in respect of the enhancement of the salaries of the latter. The dispute was referred by the Government of West Bengal to the Industrial Tribunal which adjudicated on the dispute and made an award on July 31, 1970. The said award was notified in the State Gazette on August 14, 1970. The assessee and its employees thereafter entered into a settlement in writing on December 12, 1970, modifying the award.
3. In the assessment year 1972-73, relevant to this proceeding (the corresponding accounting year being from October 1, 1970, to September 30, 1971), the assessee paid to its employees an additional salary of Rs. 80,663 and claimed deduction of the same as its business expenditure for theyear,
4. The ITO disallowed the claim of the assessee on the ground that as the award passed had been made on July 31, 1970, prior to the commencement of the accounting year involved, the said additional payment could not be related to the said accounting year.
5. On an appeal by the assessee against the assessment, the AAC directed the assessee to submit a break-up of the said Rs. 80,663 showing the amount payable under the award and the additional liability accepted by the assessee on the basis of the subsequent settlement. On the basis of the break-up, the AAC allowed deduction of a part of the said additional payment made by the assessee and disallowed the balance which was determined to be Rs. 41,274.
6. The assessee preferred a further appeal before the Income-tax Appellate Tribunal. The contention of the assessee before the Tribunal was, inter alia, that the liability for payment of the entire additional salary of Rs. 80,663 arose on the basis of the said settlement during the relevant assessment year. Though the award of the Industrial Tribunal dated July 31, 1970, became operative on and from August 14, 1970, that is, on the date it was notified in the Gazette, as an appeal under Article 136 of the Constitution lay before the Supreme Court against thesame which could have been filed within 90 days from the date of the award, the award became final during the relevant assessment year.
7. It was further contended by the assessee that neither party to the award was satisfied with the same, and a part of the award in respect of one category of the employees was vague. Instead of preferring an appeal to the Supreme Court, the parties entered into negotiations before the award became final and in fact entered into the settlement on December 12, 1970.
8. It was contended on behalf of the Revenue before the Tribunal that under Section 17(a) of the Industrial Disputes Act, an award became final after the expiry of 30 days from the date of the notification in the Gazette. Therefore, the award became final on September 14, 1970, before the commencement of the relevant assessment year and the assessee was not entitled to claim deduction of the amount paid by way of additional salary.
9. The Tribunal accepted the assessee's contention. It was found that neither the assessee nor its employees were satisfied with the award and they intended to file an appeal before the Supreme Court against the same. Instead of doing so, they entered into a settlement and modified the award as recorded in the settlement, under which the salaries of the employees of the assessee of all the grades were varied including salaries payable to the particular grade which had been left vague in the award.
10. The Tribunal noted that though the appeal to the Supreme Court was not a matter of right, nevertheless such an appeal lay and until the period of limitation prescribed for such an appeal expired, the award did not become final. On the basis of the aforesaid, the Tribunal held that as the award did not become final in the preceding year, no liability arose on the basis of the said award in the preceding year and the entire liability to pay the additional salary by the assessee arose during the relevant assessment year.
11. At the instance of the Revenue, the Tribunal has referred the following questions for our opinion under Section 256(1) of the I.T. Act, 1961, as questions of law arising out of the order of the Tribunal :
'(1) Whether, on the facts and in the circumstances of the case, and having regard to the fact that the assessee did not file an appeal to the Supreme Court under Article 136 of the Constitution, the Tribunal was right in law in holding that the award of the Industrial Tribunal did not become final on July 31, 1970, i.e., the date on which it was made and accordingly the liability to pay the additional salary as per the said award did not accrue on the same date ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 41,274 sustained by the Appellate Assistant Commissioner '
12. At the hearing, learned advocate for the Revenue, submitted that the award had become final thirty days after the same was notified, that is, on September 14, 1970. It was also submitted that no appeal was preferred by any of the parties against the said award before the Supreme Court and that the liability to pay the additional salary arose under the said award and was specifically referable to the same. In support of his contentions, learned advocate for the Revenue cited the following decisions.
(a) CIT v. Swadeshi Cotton & Flour Mills (P) Ltd. : 53ITR134(SC) . The assessee, in that case, had paid profit bonus to its employees for the calendar year 1947 in terms of an award made on January 13, 1949, under the Industrial Disputes Act. The amount was debited to the profit and loss account of the assessee for the year 1948 but the payment was in fact made in the calendar year 1949. It was held by the Supreme Court that as the claim for profit bonus was settled by the award only in 1949, the liability under the award arose in 1949 and deduction of the amount paid as profit bonus could be claimed in the calendar year 1949 and not in any earlier year.
(b) J.K. Woollen . v. CIT : 65ITR237(All) . In this case, a Division Bench of the Allahabad High Court, following Swadeshi Cotton & Flour Mills (P) Ltd. : 53ITR134(SC) , held that an assessee who followed the mercantile system of accounting incurred liability to pay bonus only when the claim to the bonus, if made, was settled amicably or by an industrial adjudication.
13. Learned advocate for the assessee contended on the other hand that the contentions of the Revenue were not sustainable. The facts found were that neither the assessee nor its employees had accepted the award, that they intended to prefer an appeal therefrom, that instead of doing so, the parties entered into negotiations and by the said settlement in writing dated December 12, 1970, modified and clarified the award. He submitted that in view of the facts found, it could not be said that the liability to pay additional salary had arisen in any year other than the assessment year involved.
14. The following decisions were cited in support of the contentions of the assessee.
(a) Swadeshi Cotton Mills Co. Ltd. v. CIT : 125ITR33(All) . This decision of the Allahabad High Court was cited for the proposition that where an assessee followed the mercantile system of accounting, a disputed contractual amount payable by the assessee could be taken into account only in the assessment year in which the dispute was settled.
(b) Sirsilk Limited v. Government of Andhra Pradesh, : (1963)IILLJ647SC . In this case, the question before the Supreme Court was whether publication of an award by an Industrial Tribunal under Section 17 of the Industrial Disputes Act, 1947, was directory or mandatory. In dealing with the said question, the Supreme Court observed, inter alia, that reference to an Industrial Tribunal was for the purpose of resolving a dispute which may have arisen between the employers and their workmen. Where a settlement was arrived at between the parties after an award had been submitted by the Tribunal to the Government but before its publication, there was no dispute left to be resolved by the publication of the award and that, in such a case, the award sent to the Government for publication should be considered to have become infructuous and the Government should refrain from publishing the same.
15. On a consideration of the facts and circumstances of this case, it appears to us that there is no dispute that Rs. 80,663 was paid by way of additional salary by the assessee to its employees in the relevant assessment year. The case of the Revenue is that the said amount or at least a part thereof was paid under the award which had become final before the commencement of the said assessment year. Admittedly, this amount or any part thereof was not payable under the award but the same was paid in terms of the subsequent settlement. No authority has been cited before us for the proposition that once an award becomes final, it is no longer open to the parties to raise further disputes or to enter into a fresh settlement.
16. In Sirsilk Ltd., : (1963)IILLJ647SC , cited on behalf of the assessee, it was accepted by the Supreme Court that even after an award was made by an Industrial Tribunal, the parties could arrive at a fresh settlement which could put an end to the disputes.
17. The preamble to the Industrial Disputes Act lays down that the said Act is 'an Act to make provision for the investigation and settlement of the industrial disputes......'
18. It has not been found nor was it the contention of the Revenue at any stage that often when a settlement was arrived at between the parties, the award continued unaffected. The said settlement has been honoured by the parties and it is clear from the facts found that the parties have given a go-by to the award and that salaries payable in terms of the award to the employees of the assessee of all grades were modified.
19. In the premises, the question whether the award became final or not before the prescribed period for an appeal to the Supreme Court expired is of no consequence nor relevant to the point in issue and we do not intend to express any final opinion on the same.
20. In view of the above, we reframe question No. 1 as follows : 'Whether, on the facts and in the circumstances of the case, the liability of the assessee to pay the additional salary of Rs. 80,663 did not accrue on July 31, 1970?'
21. We answer this question in the affirmative and in favour of the assessee.In view of the answer to question No. 1, question No. 2 has also to be answered in the affirmative and also in favour of the assessee. There will be no order as to costs,
Ajit K. Sengupta, J.
22. I agree.