1987 (3) TMI 71 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the extended definition of "employee" u/s 2(9) of the Employees' State Insurance Act.
2. Deductibility of the employer's contribution to the Employees' State Insurance Corporation for earlier years in the assessment year 1975-76.

Summary:

Issue 1: Validity of the Extended Definition of "Employee" u/s 2(9) of the Employees' State Insurance Act
The definition of "employee" was expanded by Act No. 44 of 1966 to include additional categories of employees. This amendment was challenged by employers in various High Courts. The High Courts of Calcutta and Delhi upheld the validity of the amended definition, while the High Court at Madras and the Employees' Insurance Court, Bombay, took a different view. The Employees' State Insurance authorities preferred appeals against these decisions.

Issue 2: Deductibility of Employer's Contribution for Earlier Years in the Assessment Year 1975-76
The assessee, a limited company, did not initially contribute to the Employees' State Insurance Corporation as required by the amended section 2(9). After the High Courts upheld the amendment, the authorities demanded contributions from the assessee, who then agreed to pay. The assessee claimed a deduction of Rs. 45,191 for contributions from January 28, 1968, to June 30, 1973, in the assessment year 1975-76. The Income-tax Officer rejected this claim, stating it was not a liability for the year under consideration.

The Appellate Assistant Commissioner upheld this decision, noting that the liability accrued in earlier years and the assessee followed the mercantile system of accounting. The Tribunal also upheld this view, citing the Supreme Court's decision in Kedarnath Jute Manufacturing Co. Ltd. [1971] 82 ITR 363, which stated that liability under a statute accrues when the statute is enacted, not when the demand is made.

The High Court, however, found that the liability became real and enforceable only after the High Courts upheld the validity of the extended definition and the authorities revived their demand. Citing similar cases like Orient Supply Syndicate [1982] 134 ITR 12 and Rattan Chand Kapoor [1984] 149 ITR 1, the court held that the assessee was entitled to claim the deduction in the assessment year 1975-76.

Conclusion:
The High Court answered the question in the affirmative, allowing the deduction for the assessment year 1975-76 and issued a certificate for leave to appeal to the Supreme Court due to differing views among High Courts. There was no order as to costs.