1992 (2) TMI 75 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of freight advantage payable to CACO.
2. Deduction in respect of liability for the payment of gratuity to employees.

Detailed Analysis:

1. Deduction of Freight Advantage Payable to CACO:
The primary issue was whether the assessee was entitled to deduct the amounts of freight advantage payable to the Cement Allocation and Coordinating Organisation (CACO) as an accrued and ascertained liability for the assessment years 1967-68 and 1968-69. The court examined the historical context of the cement industry's regulation and the formation of CACO, which managed the distribution and pricing of cement post-decontrol in 1966. The CACO was formed to ensure equitable distribution of cement at a uniform free on rail destination price, and the members, including the assessee, were required to pass on any freight advantage to CACO.

The assessee initially complied but later contested the payments, leading to disputes and eventual litigation. The Income-tax Officer treated the retained freight advantage as the assessee's income and disallowed the deduction for amounts credited to the "Claims Suspense Account". The Tribunal, however, allowed the deduction, citing the Supreme Court's decision in Kedarnath Jute Manufacturing Co. Ltd. v. CIT, which held that statutory liabilities arising in a particular year are deductible even if disputed.

The court, agreeing with the Tribunal, held that the liability to pass on the freight advantage to CACO was not contingent but an enforceable obligation under the scheme. The liability was ascertainable and commercially valued, analogous to statutory liabilities. Therefore, the assessee was entitled to the deduction of the freight advantage for the relevant years.

2. Deduction in Respect of Liability for the Payment of Gratuity to Employees:
The second issue was whether the assessee was entitled to a deduction for its liability for the payment of gratuity to its employees. The court noted that this issue was settled against the Revenue by a previous decision in Dalmia Dadri Cement Ltd. v. CIT. It was held that the liability for gratuity, if capable of being worked out on an actuarial basis, should be allowed as a deduction in the relevant previous years. The court concurred with the Tribunal's view that the gratuity liability was deductible.

Conclusion:
The court answered both questions in the affirmative, favoring the assessee. The assessee was entitled to the deduction of the freight advantage payable to CACO and the liability for the payment of gratuity to its employees. The judgment emphasized the enforceable nature of the liabilities under the CACO scheme and the actuarial basis for gratuity calculations.