1990 (3) TMI 374 - HC - Income Tax

Summary

Issues:
1. Whether the sum transferred to contingency reserve account is liable for deduction in arriving at the taxable income.
2. Whether the accrued liability for pension valued actuarially is an admissible deduction in computing the business income.

Analysis:
1. The first issue pertains to the transfer of a sum to a contingency reserve account and its tax implications. The Tribunal referred questions regarding this transfer under the Income-tax Act, 1961. The Court, relying on a previous decision, held that the sum transferred is not liable for deduction in arriving at the taxable income. The Court emphasized the statutory obligations and provisions governing such transfers, ultimately ruling in favor of the revenue.

2. The second issue revolves around the pension liability of the assessee. The company made a provision for pension liability based on actuarial calculations. However, the Income Tax Officer (ITO) disallowed the claim for this assessment year. The Commissioner (Appeals) and the Tribunal upheld this decision, noting that no fund was created for pension payments and that the liability arises only upon retirement or similar events. The Court highlighted the company's inconsistent approach of claiming deductions based on both actual payments and actuarial provisions simultaneously. It emphasized the need for consistency in the method of claiming deductions, ultimately ruling in favor of the revenue.

3. The Court cited a previous case to distinguish between accrued liability based on actuarial computations and liability arising from actual payments. It noted that while one method was followed in the cited case, the current assessee attempted to utilize two different methods simultaneously, which was deemed impermissible. The Court reiterated the principle that the company could only claim deductions when actual payments were made to employees, affirming the Tribunal's decision.

In conclusion, the Court addressed the issues concerning the contingency reserve account transfer and pension liability, emphasizing the need for adherence to consistent deduction methods and ruling in favor of the revenue in both instances.