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Commissioner of Income-tax Vs. National Insurance Co. of India - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 39 of 1977
Judge
Reported in(1981)20CTR(Cal)226,[1981]127ITR54(Cal)
AppellantCommissioner of Income-tax
RespondentNational Insurance Co. of India
Appellant AdvocateA.K. Sengupta, Adv.
Respondent AdvocateN.K. Poddar and ;R.N. Saha, Advs.
Cases ReferredAtherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd.
Excerpt:
- .....inter alia, as follows :'the liability for the year 1971 is shown at rs. 9,99,247 made up of discounted value of pensions to existing pensioners at rs. 6,19,396 and discounted value of prospective pensions to active staff at rs. 3,96,240 as reduced by a sum of rs. 16,389 being the discounted value of annual contribution of 20% of expected future salaries. the corresponding figures for the earlier year are rs. 8,67,968, rs. 5,38,152 and rs. 3,50,364 as reduced by rs; 20,548, respectively, for discounted value of pensions to existing pensioners and the discounted value of prospective pensions to active staff and discounted value of annual contribution of 20% of expected future salaries. the difference between the two amounts of rs. 9,99,247 and rs. 8,67,968 has been claimed by the.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provision of pension of Rs. 1,31,279 represented on accrued liability and was an admissible deduction in computing the profits of the assessee-company for the assessment year 1972-73?'

2. The assessee was a foreign company carrying on insurance business in India. It was taken over by the Govt. of India with all its assets and liabilities with effect from January 1, 1973. The assessment year involved is 1972-73, the corresponding accounting period having ended on December 31, 1971. The total income was computed at Rs. 21,42,130 after disallowing Rs. 1,79,413 provided in the accounts by way of 'pension provision'. The assessee felt aggrieved and submitted an appeal before the AAC, regarding the disallowance of a sum of Rs. 1,31,279 in computing its total income for the relevant assessment year. The amount of Rs. 1,31,279 was the sum determined on actuarial valuation as a liability for pension to the employees under a scheme drawn up by the company for the purpose. The AAC observed that in the past, the company had been claiming the actual payment of pension to the ex-employees made during the respective years, but during the year under appeal, the assessee had carried out actuarial valuation of its liability to pay pension to its employees in future also and claimed such liability as a deduction during the year instead of actual payments. The AAC further observed that the allowance made by the ITO, for the year under appeal, of the actual payment instead of the deduction for the estimated liability on the basis of actuarial valuation as claimed by the assessee was consistent with the past practice and any departure therefrom would result in an anomalous position. The AAC also considered that the amount of Rs. 1,31,279 claimed was in the nature of provision notwithstanding that this amount had been quantified after an actuarial valuation and, therefore, the amount was not deductible in computing the assessee's profit for the year under consideration.

3. The assessee further preferred an appeal to the Tribunal and the Tribunal observed, inter alia, as follows :

'The liability for the year 1971 is shown at Rs. 9,99,247 made up of Discounted Value of Pensions to existing pensioners at Rs. 6,19,396 and discounted value of prospective pensions to active staff at Rs. 3,96,240 as reduced by a sum of Rs. 16,389 being the discounted value of annual contribution of 20% of expected future salaries. The corresponding figures for the earlier year are Rs. 8,67,968, Rs. 5,38,152 and Rs. 3,50,364 as reduced by Rs; 20,548, respectively, for discounted value of pensions to existing pensioners and the discounted value of prospective pensions to active staff and discounted value of annual contribution of 20% of expected future salaries. The difference between the two amounts of Rs. 9,99,247 and Rs. 8,67,968 has been claimed by the assessee for deduction during the relevant year. It is an admitted fact that there was no trust and the amount represented unfunded contribution.'

4. Thereafter, referring to the relevant decisions, the Tribunal observed that, in the instant case before them, the amount provided during the year was the discounted value of pension to the existing pensioners. Therefore, according to the Tribunal, there was a definite liability to pensioners which had already arisen and the departmental representative did not seriously object to the allowance of such liability. The Tribunal, accordingly, allowed the deduction claimed for.

5. In the circumstances, the question as indicated hereinbefore has been referred to this court under Section 256(1) of the I.T. Act, 1961.

6. In consonance with the principle laid down in the decision of the House of Lords in the case of Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, we had to consider the provision for gratuity created by statute based on actuarial valuation in the decision reported as CIT v. Eastern Spinning Mills Ltd., Income-tax Reference No. 30 of 1977 (judgment delivered on 7-6-80) : [1980]126ITR686(Cal) . In that case, the assessee made a provision for gratuity amounting to Rs. 8,87,863 in its account for the assessment year 1972-73 and claimed the same as an allowable revenue deduction. The ITO allowed the claim for deduction of the amount pertaining to the year under consideration and disallowed the balance. The AAC accepted the assessee's claim on the ground that it was made on actuarial basis and was in consonance with the statutory provisions of the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971. The Tribunal upheld the view of the AAC. On a reference to this court, we held that the provision made was not excessive and unreal and the provision made was a permissible deduction in computing the true profit of the assessee-company and, therefore, the Tribunal was justified in holding that the provision for gratuity was allowable in its entirety as a revenue deduction.

7. Our attention was drawn to the decision of the Madras High Court in the case of CIT v. Andhra Prabha P. Ltd. : [1980]123ITR760(Mad) . There it was held that if the provision for making payment of gratuity was based on legal and scientific basis the assessee was entitled to the deduction. In this case, as the persons in respect of which provision had been made had already retired, there was an existing liability under the terms of their employment agreed with them and if an existing liability had been actuarially computed, about which there is no dispute, then, in our opinion in consonance with the principle, that we have mentioned in our decision mentioned hereinbefore, the Tribunal was right in allowing this deduction.

8. In the premises, the question is answered in the affirmative and in favour of the assessee.

9. Each party will pay and bear its own costs.

Sudhtndra Mohan Guha, J.

I agree.


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