1990 (9) TMI 47 - HC - Income Tax

Summary

Issues:
1. Allowability of ex gratia payment exceeding statutory limit under section 36(1)(ii)
2. Deduction of prior paid expenses for assessment year 1977-78
3. Admissibility of short provision made good for stores under prior paid expenses for relevant accounting period

Analysis:
Issue 1: The case involved the question of whether an ex gratia payment exceeding the statutory limit of 20% bonus, made by the assessee, was allowable as a deduction under section 36(1)(ii) of the Income-tax Act. The Income-tax Appellate Tribunal had allowed the deduction, but the High Court emphasized that any payment, even if customary or made per a Government order, exceeding the statutory limit should meet the conditions of section 36(1)(ii). The court referred to previous decisions to support this principle and directed the Tribunal to reconsider the deduction based on established criteria.

Issue 2: Another aspect of the case was the deduction of prior paid expenses, specifically a sum of Rs. 375 out of Rs. 1,025 for the assessment year 1977-78. The High Court noted that the Tribunal had not properly considered whether the liability for this expense was incurred during the relevant accounting period. Therefore, the court directed the Tribunal to reassess and determine if the expense was indeed a liability incurred in the relevant year for deduction eligibility.

Issue 3: The final issue pertained to the admissibility of a short provision made good for stores under prior paid expenses. The Appellate Tribunal had observed that the claim, if admissible, related to the accounting period ending in the subsequent year. The High Court deemed this observation unauthorized and directed the Tribunal to refrain from making such uninvited considerations. The court referred to a relevant decision and answered this issue in the negative, against the assessee and in favor of the Revenue.

In conclusion, the High Court provided detailed analysis and directions for each issue, emphasizing the need for adherence to statutory provisions and proper consideration of liabilities for deduction eligibility. The Tribunal was instructed to reevaluate the deductions in light of the court's directions, ensuring a thorough examination of the facts and legal principles involved.