Commissioner of Income Tax vs Oswal Woollen Mills Ltd.

Jawahar Lal Gupta, J.—The assessee is an exporter. In respect of the assessment year 1976-77, the assessee claimed weighted deduction u/s 35B of the Income Tax Act, 1961. Following the decision of the Special Bench in J. Nam Chandi and Co, in I. T. R. Nos. 3255 and 3330/Bom/76-77, the Tribunal accepted the assessee''s claim. Still further, the assessee had also claimed deduction on account of payment of wages/salary in lieu of leave to various employees. This claim was also allowed by the Tribunal by reversing the decisions of the assessing and the appellate authorities.

Aggrieved by the order of the Tribunal, the Revenue filed a petition u/s 256(1) of the Act for reference to this court. The application was accepted. The following questions have been referred to this court for opinion :

"(b) Whether, on the facts and circumstances of the case, on a proper interpretation of Section 35B, the Appellate Tribunal was right in law in allowing weighted deduction of the following items of expenditures claimed by the assessee for the assessment year 1976-77 :

(i) Commission/service charges paid to the S.T.C./H.H.E.C.

(ii) E.C.G.C. charges and premium.

(iii) Subscription to Hosiery Export Corporation.

(iv) Part of the expenses under the heads ''Salary'', ''Subscription'', ''Electricity'', ''Postage'' and ''Telegrams'', ''Stationary and printing'', ''Office expenses'', etc. ?

(c) Whether, on the facts and circumstances of the case, in the absence of there being anything on record connecting the aforesaid items of expenditure wholly or in part with the specific activities mentioned in Section 35B(1)(b), the Appellate Tribunal was right in law in allowing weighted deduction on the aforesaid items of expenditure simply because they were connected with the assessee''s export business ?

(d) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in allowing the assessee''s claim for leave with wages, ignoring the fact that this was not an ascertained liability but a contingent liability and hence not allowable under the law ?"

Learned counsel for the parties have been heard.

So far as questions (b) and (c) are concerned, counsel are agreed that in view of the decisions of their Lordships of the Supreme Court in Commissioner of Income Tax, Delhi Vs. Stepwell Industries Ltd. and etc. etc., and Commissioner of Income Tax (CNTL), Ludhiana Vs. Hero Cycles Pvt. Ltd., Ludhiana, , the order of the Tribunal may be set aside and that the matter may be remitted to the Tribunal.

We do so. It is further directed that the assessee shall be given an opportunity to adduce evidence and to substantiate its claim for deduction under various heads of Section 35B. The matter shall be decided after consideration of the relevant material.

So far as question (d) is concerned, it has been submitted by Mr. Sanjay Bansal, learned counsel for the assessee, that regular payments were made to the employees in lieu of the unavailed leave. Since the payment had been made, the assessee is entitled to the deduction as claimed. It has been further pointed out that similar deductions had been allowed prior to and after the assessment year 1976-77. Reliance has been placed on the decision of their Lordships of the Supreme Court in Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, .

Mr. Sawhney controverts the claim and submits that the deduction can be claimed only if the conditions stipulated in section 79 of the Factories Act, 1948, are fulfilled.

The matter has been considered at length by the Tribunal. The contention has been noticed in paragraph 21. The findings have been given in paragraph 22 in the order at annexure C. A perusal of the order shows that the assessee had furnished details with regard to the claim. It was examined in the light of the provisions of section 79 of the Factories Act, 1948. The Tribunal had observed that "every worker who had worked for a period of 240 days or more in a factory during the calendar year, is allowed during the subsequent calendar year ''leave with wages'' for a specific number of days." The period within which the leave had to be availed of was also noticed. It was also noticed that similar deduction had been allowed in respect of the assessment year 1973-74. On examination of the factual position, it was observed that "it is not for the first year that the assessee has put in its claim. Year after year, on consistent method, the assessee has been making this provision and claiming the same and it is being allowed ...". Thus, the assessee''s claim was accepted.

Still further, it is also the admitted position that in respect of the assessment years 1992-93 to 1996-97, the assessee''s claim has been sustained by the Tribunal. In respect of the year 1998-99, the claim has been allowed even by the assessing authority. The categorical averment in the affidavit filed on behalf of the assessee has not been controverted. The view taken by the authorities is in conformity with the decision of their Lordships of the Supreme Court in the case of Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, .

Resultantly, the deduction as claimed by the assessee is rightly allowed. The question is answered in favour of the assessee and against the Revenue.

In view of the above, so far as questions (b) and (c) are concerned, the matter is remitted to the Tribunal for decision in accordance with the dictum of their Lordships of the Supreme Court in the cases of Commissioner of Income Tax, Delhi Vs. Stepwell Industries Ltd. and etc. etc., and Commissioner of Income Tax (CNTL), Ludhiana Vs. Hero Cycles Pvt. Ltd., Ludhiana, . So far as question (d) is concerned, it is answered against the Revenue and in favour of the assessee. No costs.