1994 (4) TMI 381 - HC - Income Tax

Summary

Issues:
1. Change in accounting method for bonus payments from cash system to mercantile system.
2. Disallowance of provision for bonus liabilities for the calendar year 1983.
3. Treatment of advance tax payments made after the due date for interest calculation.
4. Levying of interest under section 139(8)/215 for non-payment of last installment of advance tax on the prescribed date.

Issue 1: Change in accounting method for bonus payments
The case involved a reference made by the revenue regarding the change in the method of accounting for bonus payments by the assessee. The Tribunal had allowed the deduction for bonus payment on both cash and due basis for different years. The assessee had shifted from the cash system to the mercantile system for accounting of bonus payments. The High Court observed that the change was bona fide and consistent with the mercantile system followed by the assessee for income tax assessment. The Court relied on precedents and held in favor of the assessee, allowing the deduction for the bonus provision for the calendar year 1983.

Issue 2: Disallowance of provision for bonus liabilities
The Tribunal had deleted the disallowance of a provision made by the assessee for bonus liabilities for the calendar year 1983. The High Court upheld the Tribunal's decision, emphasizing that the provision for bonus payable in accordance with the law is admissible when following the mercantile system of accounting. The Court referred to a decision of the Bombay High Court to support its ruling, stating that the provision made by the assessee was valid and should be allowed as a deduction.

Issue 3: Treatment of advance tax payments
The questions raised in this issue pertained to whether advance tax payments made after the due date should be considered for interest calculation under sections 139(8) and 215 of the Income-tax Act. The High Court discussed a previous decision of a Division Bench and concluded that the case law cited by the revenue did not support their contention. The Court relied on two decisions of the same Court to rule in favor of the assessee, stating that advance tax paid within the financial year, even if not strictly in accordance with the provisions, should be considered for interest calculation.

Issue 4: Levying of interest for non-payment of last installment of advance tax
The final issue revolved around the levy of interest under section 139(8)/215 for the non-payment of the last installment of advance tax on the prescribed date but paid during the financial year. The High Court, following its previous decisions, ruled in favor of the assessee, stating that the case law supported the assessee's position. The Court answered all questions in the reference in favor of the assessee, concluding that the revenue's contentions were not valid.