Glaxo India Ltd. Vs. Dy. Cit, Sr-17 - Court Judgment

Excerpt:
- bombay stamp act, 1958. schedule 1, article 36: [y.r. meena, cj & d.a. mehta & a.s. dave, jj] deed of mortgage liability to pay stamp duty held, any instruments in respect of transactions, relating to loans and advances, loans and mortgages, cash credit or overdraft bonds, agreements of pawn or pledge and letters of hypothecation executed by farmers for agricultural and land development purposes in favour of all commercial bank etc. are entitled to remission of entire duty chargeable under the stamp act with effect on and from 1.4.1979 under government notification dated 23.3.1979. thus, where loan was granted by bank of india under agricultural finance scheme towards purchase of air compressors, drilling rods and other accessories. use of the air compressors, drilling rods and other accessories in case of applicant who is a farmer can only be for purpose of drilling a bore-well for purpose of irrigation in process of carrying on agricultural activities. thus, it is apparent that loan was availed of by applicant-farmer for agricultural and land development purposes because a bore-well would go to increase the utility of agricultural land by ensuring round the year irrigation. the instrument in question would therefore fall within scope of complete remission granted to instrument of mortgage under government notification dated 23.3.1979 and hence not liable to stamp duty under article 36 of schedule i of the act. - he explained that the provisions relating to making adjustments to increase or decrease the profit arrived at in accordance with the provisions of schedule vi to the companies act, for the purpose of section 32ab, have been clearly laid down by the act itself. the items are clearly spelt out.orderdr. o.k. narayanan, a.m. this is an appeal filed by the assessee. the relevant assessment year is 1990-91. this appeal is directed against the revision order passed by the commissioner of income-tax, bombay city-v, under section 263 of the income tax act, 1961. the said order has been passed on 2-11-1994. the subject-matter of the revision order is the assessment order passed by the assessing authority on 31-3-1993 under section 143(3) of the income tax act, 1961.2. in computing its taxable income, the assessee company has claimed the deduction available under section 32ab. in its profit and loss account prepared for the relevant previous year, the assessee-company has credited an amount of rs. 25,60,000 by way of 'provisions written back'. this amount of rs. 25,60,000 credit to the profit and loss account also formed part of the eligible profits computed by the assessee-company for the purpose of claiming deduction under section 32ab. the assessment was completed accepting the above computation made out by the assessee-company. the deduction under section 32ab was accordingly allowed by the assessing authority.3. on perusal of the assessment records, the commissioner of income tax found that the amount of rs. 25,60,000 credited by the company in its profit and loss account did not form part of the eligible profit for computing the deduction available to the assessee under section 32ab. therefore, he found that an excess allowance of rs. 5,12,000 has been granted to the assessee company under section 32ab which has resulted in under assessment of income of the assessee company. therefore, he proposed to revise the assessment order. notice was duly served on the assessee company.4. in reply, the assessee company explained that the said amount of rs. 25,60,000 has been rightly credited by the assessee-company in its profit and loss account pertaining to the impugned assessment year 1990-91. the assessee-company had in fact debited a sum of rs. 30 lakhs in its profit and loss account prepared for the previous year ended on 30-6-1978, relevant to the assessment year 1979-80. the said sum of rs. 30 lakhs was debited by way of provision made for paying disputed wages to the temporary staff employed at the factory of the assessee situated in aligarh. but in completing the assessment for the assessment year 1979-80, the said provision of rs. 30 lakhs was not allowed by the assessing authority and the said amount was added back to the income of' the assessee-company. later on, the assessee had paid a sum of rs. 4 lakhs during the previous year relevant to the assessment year 1986-87 towards the earlier stated wage dispute. the said amount was allowed by the assessing authority as a deduction for the assessment year 1986-87 on payment basis. similarly another amount of rs. 40,000 was allowed for the assessment year 1987-88, again on the basis of actual payment. thus, in total a sum of rs. 4,40,000 was paid by the assessee-company towards the disputed wages and the said amount was allowed by the assessing authority in completing the relevant assessments. the amount of rs. 25,60,000 is the unused balance in the provision already made in the account. as the provision was no longer required, the assessee has written back the amount of rs. 25,60,000 in its account by crediting the profit and loss account. the assessee submitted before the commissioner of income tax that the said adjustment did not fall within the ambit of section 32ab of the act. the assessee also argued before the commissioner of income tax that adjustment under sub-section (3) of section 32ab could be made on the write back only if it was allowed by way of deduction under section 32ab in an earlier year and not otherwise. both the above contentions were rejected by the commissioner of income tax who set aside the assessment order to the above extent and directed the assessing authority to pass appropriate orders on the issue afresh. it is against the above that the assessee is in appeal before us.5. shri p.j. pardiwala, the learned counsel appeared and argued the case for the assessee-company. he invited our attention to sub-section (3) of section 32ab wherein the items for the purpose of making adjustments to the profits computed in accordance with provisions of companies act are listed. the profits computed in accordance with the requirements of parts ii & iii of schedule vi to the companies act, 1956 need to be increased by the aggregates of various items listed in clauses (i) to (vii). as per the provisions of section 32ab(3)(v) profits of business shall be arrived at after increasing the same by the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. sub-section (3) further provides that the profit arrived at according to schedule vi to the companies act may be reduced by any amount or amounts withdrawn from the reserves, or provisions if such amounts are credited to the profit and loss account.6. it is the contention of the learned counsel that as far as the present case is concerned, the question of reducing the profit by any amount withdrawn from reserves or provisions need to be considered in the light of clause (v) of sub-section (3) of section 32ab which relates to increasing the profit by the amount set aside to any provisions for meeting liabilities. the learned counsel explained that the question of reducing the provisions written back would arise only in such a case where the said amount of provision has already been considered in the earlier assessment year/s for increasing the profit of the assessee-company for the purpose of section 32ab. if the amount of the provision has not been considered in the earlier assessments for increasing the profit of the assessee-company, in the light of sub-clause (v), the said provision could not be considered for reducing the profits in either way. the learned counsel submitted that when the assessee debited the provision in the assessment year 1979-80, the deduction under section 32ab was not available and there was no occasion to increase the profit of the assessee-company by adding back the said amount of provision for the purpose of section 32ab for the assessment years 1979-80 or for any subsequent assessment years. the provision now written back by the assessee for the impugned assessment year 1990-91 has never been considered for increasing the profit of the assessee-company in earlier assessment year, for the purpose of section 32ab. the fact being so, the provision now written back cannot be considered for reducing the profit of the assessee for the impugned assessment year 1990-91.7. the learned counsel submitted that the tribunal has to interpret the real nexus between clause (v) of section 32ab(3) and the question of reducing any amount of provision from the profit for arriving at the eligible profit contemplated under section 32ab.8. shri k.c. naredi, the learned commissioner of income tax appeared for the revenue and argued the case. he explained that the provisions relating to making adjustments to increase or decrease the profit arrived at in accordance with the provisions of schedule vi to the companies act, for the purpose of section 32ab, have been clearly laid down by the act itself. the act has listed out the items by which the profit has to be increased or decreased. the items are clearly spelt out. once, the language used in a provision of law is clear and unambiguous, there is no need of straining for any interpretation. one should follow the plain language of the provisions of law. no intendment is called for in such circumstances.9. the learned commissioner invited our attention to the relevant provisions contained in sub-section (3) of section 32ab. he explained that the law has listed out (i) to (vii) items by which the profits computed by the assessee-company in accordance with the provisions of the companies act has to be increased if any of those items is debited in its profit and loss account. thereafter, the law says that the profit shall be further reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account. the law does not attach any further condition on the question of reducing the profit by the amount withdrawn from reserves or provisions and credited to the profit and loss account. if the profit and loss account is credited by any amount withdrawn from reserves or provisions, the same should be reduced from the profits of the assessee-company. no further conditions or fetters are provided in the law. when the law relating to such adjustments is very clear, there is no need to go further and create any hypothetical conditions as if they existed in law. he, therefore, submitted that the administrative commissioner has rightly exercised the power vested on him under the provisions of law contained in section 263 of the income tax act. he has rightly held that the write-back of the unutilised provision should be excluded from the computation of eligible profits for the purpose of section 32ab.10. we considered the matter carefully. for the purpose of convenience, the relevant provisions of section 32ab(3) are extracted below :'(3) the profits of business or profession of assessee for the purposes of sub-section (1) shall be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of parts ii and iii of schedule vi to the companies act, 1956 (1 of 1956), as increased by the aggregate of(i) the amount of depreciation;(ii) the amount of income-tax paid or payable, and provision therefor;(iii) the amount of surtax paid or payable under the companies (profits) surtax act, 1964 (7 of 1964);(iv) the amounts carried to any reserves, by whatever name called;(v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities;(vi) the amount by way of provision for losses of subsidiary companies; and(vii) the amount or amounts of dividends paid or proposed,if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account.'11. the method of working out the eligible profit for the purpose of deduction available under section 32ab is explained in sub-section (3) as extracted above. first of all, the depreciation allowance as computed under section 32 of the income tax act, 1961 has to be deducted from the profits computed in accordance with the requirements of parts ii and iii of schedule vi to the companies act, 1956. thereafter, the said amount of profit should be increased by the aggregate of 7 items mentioned therein. those items relate to the amount of depreciation debited to the profit and loss account in accordance with the companies act, the amount of income-tax paid or payable or provision made therefor, etc. etc. any amount carried to any reserve is also to be added and any amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities also need to be added back. after adding back such items, if any, the said amount has to be further reduced by any amount or amounts withdrawn from reserves or provisions and such withdrawn amounts are credited-to the profit and loss account of the assessee-company. all the adjustment items are given independently. as rightly argued by the learned commissioner of income tax, the law has not provided any further conditions or stipulations thereto. the rule relating to reducing the profit reads that if the assessee has withdrawn any amount from any reserves or provisions and such amounts withdrawn are credited to the profit and loss account, then such amounts shall be reduced from the hitherto adjusted profit of the assessee-company. there is no condition stated in the law that such amounts shall be reduced only if the said amounts were considered for increasing the profit of the assessee in the earlier assessment years, for the purpose of section 32ab. such a mutual relation is not contemplated in the provisions of law relating to adjustments given in sub-section (3) of section 32ab. therefore, as nothing is missing in understanding the provisions of law on the subject, no interpretation is called for. the literal interpretation should follow.12. in the present case before us, the assessee has credited an amount of rs. 25,60,000 to its profit and loss account by way of withdrawal from the provisions made in the earlier assessment years towards payment of wages liability. once this fact is established, the law relating to reducing the profit springs into action automatically. therefore, the commissioner of income tax has rightly held that the said amount of rs. 25,60,000 should be reduced from the profit of the assessee-company worked out in accordance with parts ii and iii of schedule vi to companies act. therefore, we have to find that the revision order passed by the commissioner of income tax is just and proper in law. it has to be upheld. therefore, we hold that the direction issued by the commissioner of income tax is sustainable in law.13. the amount so credited by the assessee-company to its profit and loss account by way of write back of unexhausted provision did not relate to the profit earned by the assessee-company during the relevant previous year. the said amount relates to an earlier assessment year. if the write back is not adjusted as directed by the law, it would distort the profit of the impugned assessment year and would overstate the profit for the purpose of section 32ab which was not the intention of the law.14. in result, this appeal filed by the assessee is dismissed.

Judgment:
ORDER

Dr. O.K. Narayanan, A.M.

This is an appeal filed by the assessee. The relevant assessment year is 1990-91. This appeal is directed against the revision order passed by the Commissioner of Income-tax, Bombay City-V, under section 263 of the Income Tax Act, 1961. The said order has been passed on 2-11-1994. The subject-matter of the revision order is the assessment order passed by the assessing authority on 31-3-1993 under section 143(3) of the Income Tax Act, 1961.

2. In computing its taxable income, the assessee company has claimed the deduction available under section 32AB. In its profit and loss account prepared for the relevant previous year, the assessee-company has credited an amount of Rs. 25,60,000 by way of 'provisions written back'. This amount of Rs. 25,60,000 credit to the profit and loss account also formed part of the eligible profits computed by the assessee-company for the purpose of claiming deduction under section 32AB. The assessment was completed accepting the above computation made out by the assessee-company. The deduction under section 32AB was accordingly allowed by the assessing authority.

3. On perusal of the assessment records, the Commissioner of Income Tax found that the amount of Rs. 25,60,000 credited by the company in its profit and loss account did not form part of the eligible profit for computing the deduction available to the assessee under section 32AB. Therefore, he found that an excess allowance of Rs. 5,12,000 has been granted to the assessee company under section 32AB which has resulted in under assessment of income of the assessee company. Therefore, he proposed to revise the assessment order. Notice was duly served on the assessee company.

4. In reply, the assessee company explained that the said amount of Rs. 25,60,000 has been rightly credited by the assessee-company in its profit and loss account pertaining to the impugned assessment year 1990-91. The assessee-company had in fact debited a sum of Rs. 30 lakhs in its profit and loss account prepared for the previous year ended on 30-6-1978, relevant to the assessment year 1979-80. The said sum of Rs. 30 lakhs was debited by way of provision made for paying disputed wages to the temporary staff employed at the factory of the assessee situated in Aligarh. But in completing the assessment for the assessment year 1979-80, the said provision of Rs. 30 lakhs was not allowed by the assessing authority and the said amount was added back to the income of' the assessee-company. Later on, the assessee had paid a sum of Rs. 4 lakhs during the previous year relevant to the assessment year 1986-87 towards the earlier stated wage dispute. The said amount was allowed by the assessing authority as a deduction for the assessment year 1986-87 on payment basis. Similarly another amount of Rs. 40,000 was allowed for the assessment year 1987-88, again on the basis of actual payment. Thus, in total a sum of Rs. 4,40,000 was paid by the assessee-company towards the disputed wages and the said amount was allowed by the assessing authority in completing the relevant assessments. The amount of Rs. 25,60,000 is the unused balance in the provision already made in the account. As the provision was no longer required, the assessee has written back the amount of Rs. 25,60,000 in its account by crediting the profit and loss account. The assessee submitted before the Commissioner of Income Tax that the said adjustment did not fall within the ambit of section 32AB of the Act. The assessee also argued before the Commissioner of Income Tax that adjustment under sub-section (3) of section 32AB could be made on the write back only if it was allowed by way of deduction under section 32AB in an earlier year and not otherwise. Both the above contentions were rejected by the Commissioner of Income Tax who set aside the assessment order to the above extent and directed the assessing authority to pass appropriate orders on the issue afresh. It is against the above that the assessee is in appeal before us.

5. Shri P.J. Pardiwala, the learned counsel appeared and argued the case for the assessee-company. He invited our attention to sub-section (3) of section 32AB wherein the items for the purpose of making adjustments to the profits computed in accordance with provisions of Companies Act are listed. The profits computed in accordance with the requirements of Parts II & III of Schedule VI to the Companies Act, 1956 need to be increased by the aggregates of various items listed in clauses (i) to (vii). As per the provisions of section 32AB(3)(v) profits of business shall be arrived at after increasing the same by the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. Sub-section (3) further provides that the profit arrived at according to Schedule VI to the Companies Act may be reduced by any amount or amounts withdrawn from the reserves, or provisions if such amounts are credited to the profit and loss account.

6. It is the contention of the learned counsel that as far as the present case is concerned, the question of reducing the profit by any amount withdrawn from reserves or provisions need to be considered in the light of clause (v) of sub-section (3) of section 32AB which relates to increasing the profit by the amount set aside to any provisions for meeting liabilities. The learned counsel explained that the question of reducing the provisions written back would arise only in such a case where the said amount of provision has already been considered in the earlier assessment year/s for increasing the profit of the assessee-company for the purpose of section 32AB. If the amount of the provision has not been considered in the earlier assessments for increasing the profit of the assessee-company, in the light of sub-clause (v), the said provision could not be considered for reducing the profits in either way. The learned counsel submitted that when the assessee debited the provision in the assessment year 1979-80, the deduction under section 32AB was not available and there was no occasion to increase the profit of the assessee-company by adding back the said amount of provision for the purpose of section 32AB for the assessment years 1979-80 or for any subsequent assessment years. The provision now written back by the assessee for the impugned assessment year 1990-91 has never been considered for increasing the profit of the assessee-company in earlier assessment year, for the purpose of section 32AB. The fact being so, the provision now written back cannot be considered for reducing the profit of the assessee for the impugned assessment year 1990-91.

7. The learned counsel submitted that the Tribunal has to interpret the real nexus between clause (v) of section 32AB(3) and the question of reducing any amount of provision from the profit for arriving at the eligible profit contemplated under section 32AB.

8. Shri K.C. Naredi, the learned Commissioner of Income Tax appeared for the revenue and argued the case. He explained that the provisions relating to making adjustments to increase or decrease the profit arrived at in accordance with the provisions of Schedule VI to the Companies Act, for the purpose of section 32AB, have been clearly laid down by the Act itself. The Act has listed out the items by which the profit has to be increased or decreased. The items are clearly spelt out. Once, the language used in a provision of law is clear and unambiguous, there is no need of straining for any interpretation. One should follow the plain language of the provisions of law. No intendment is called for in such circumstances.

9. The learned Commissioner invited our attention to the relevant provisions contained in sub-section (3) of section 32AB. He explained that the law has listed out (i) to (vii) items by which the profits computed by the assessee-company in accordance with the provisions of the Companies Act has to be increased if any of those items is debited in its profit and loss account. Thereafter, the law says that the profit shall be further reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account. The law does not attach any further condition on the question of reducing the profit by the amount withdrawn from reserves or provisions and credited to the profit and loss account. If the profit and loss account is credited by any amount withdrawn from reserves or provisions, the same should be reduced from the profits of the assessee-company. No further conditions or fetters are provided in the law. When the law relating to such adjustments is very clear, there is no need to go further and create any hypothetical conditions as if they existed in law. He, therefore, submitted that the administrative Commissioner has rightly exercised the power vested on him under the provisions of law contained in section 263 of the Income Tax Act. He has rightly held that the write-back of the unutilised provision should be excluded from the computation of eligible profits for the purpose of section 32AB.

10. We considered the matter carefully. For the purpose of convenience, the relevant provisions of section 32AB(3) are extracted below :

'(3) The profits of business or profession of assessee for the purposes of sub-section (1) shall be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of

(i) the amount of depreciation;

(ii) the amount of income-tax paid or payable, and provision therefor;

(iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964);

(iv) the amounts carried to any reserves, by whatever name called;

(v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities;

(vi) the amount by way of provision for losses of subsidiary companies; and

(vii) the amount or amounts of dividends paid or proposed,

if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account.'

11. The method of working out the eligible profit for the purpose of deduction available under section 32AB is explained in sub-section (3) as extracted above. First of all, the depreciation allowance as computed under section 32 of the Income Tax Act, 1961 has to be deducted from the profits computed in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act, 1956. Thereafter, the said amount of profit should be increased by the aggregate of 7 items mentioned therein. Those items relate to the amount of depreciation debited to the profit and loss account in accordance with the Companies Act, the amount of income-tax paid or payable or provision made therefor, etc. etc. Any amount carried to any reserve is also to be added and any amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities also need to be added back. After adding back such items, if any, the said amount has to be further reduced by any amount or amounts withdrawn from reserves or provisions and such withdrawn amounts are credited-to the profit and loss account of the assessee-company. All the adjustment items are given independently. As rightly argued by the learned Commissioner of Income Tax, the law has not provided any further conditions or stipulations thereto. The rule relating to reducing the profit reads that if the assessee has withdrawn any amount from any reserves or provisions and such amounts withdrawn are credited to the profit and loss account, then such amounts shall be reduced from the hitherto adjusted profit of the assessee-company. There is no condition stated in the law that such amounts shall be reduced only if the said amounts were considered for increasing the profit of the assessee in the earlier assessment years, for the purpose of section 32AB. Such a mutual relation is not contemplated in the provisions of law relating to adjustments given in sub-section (3) of section 32AB. Therefore, as nothing is missing in understanding the provisions of law on the subject, no interpretation is called for. The literal interpretation should follow.

12. In the present case before us, the assessee has credited an amount of Rs. 25,60,000 to its profit and loss account by way of withdrawal from the provisions made in the earlier assessment years towards payment of wages liability. Once this fact is established, the law relating to reducing the profit springs into action automatically. Therefore, the Commissioner of Income Tax has rightly held that the said amount of Rs. 25,60,000 should be reduced from the profit of the assessee-company worked out in accordance with Parts II and III of Schedule VI to Companies Act. Therefore, we have to find that the revision order passed by the Commissioner of Income Tax is just and proper in law. It has to be upheld. Therefore, we hold that the direction issued by the Commissioner of Income Tax is sustainable in law.

13. The amount so credited by the assessee-company to its profit and loss account by way of write back of unexhausted provision did not relate to the profit earned by the assessee-company during the relevant previous year. The said amount relates to an earlier assessment year. If the write back is not adjusted as directed by the law, it would distort the profit of the impugned assessment year and would overstate the profit for the purpose of section 32AB which was not the intention of the law.

14. In result, this appeal filed by the assessee is dismissed.