1981 (1) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of bonus payments under different accounting systems.
2. Jurisdiction and scope of the appellate tribunal's powers.

Detailed Analysis:

1. Deductibility of Bonus Payments Under Different Accounting Systems:
The primary issue revolves around the deductibility of bonus payments made by the assessee, who had historically paid bonuses on a cash basis but maintained accounts on a mercantile system. For the assessment year 1971-72, the assessee paid a bonus of Rs. 1,00,004 in cash for the previous year (1970-71) and made a provision of Rs. 1,19,944 for the current year (1971-72). The Income Tax Officer (ITO) disallowed both claims, asserting that the assessee could not claim deductions for the preceding year and on a mercantile basis in the current year. The Appellate Assistant Commissioner (AAC) allowed the cash payment of Rs. 1,00,004 but disallowed the provision for Rs. 1,19,944.

Upon further appeal, the Tribunal observed that the assessee had switched from a cash to a mercantile system for bonus payments in the relevant year. The Tribunal noted that there was no mala fide intent in this change and allowed the provision of Rs. 1,19,944 as a deduction. Consequently, the Tribunal disallowed the cash payment of Rs. 1,00,004 for the preceding year, as the assessee did not follow the cash system in the year under consideration. The Tribunal directed the ITO to allow a further deduction of Rs. 19,940 in addition to the Rs. 1,00,004 already allowed by the AAC.

2. Jurisdiction and Scope of the Appellate Tribunal's Powers:
The legal question referred to the High Court was whether the Tribunal erred in not allowing Rs. 1,00,004 as a permissible deduction for the assessment year 1971-72. The Tribunal's jurisdiction was challenged, with the argument that the Tribunal should not have disallowed the Rs. 1,00,004, which had already been allowed by the AAC and was not the subject matter of the appeal.

The High Court examined multiple precedents to determine the scope and jurisdiction of the appellate tribunal. The court referred to the decision in CIT v. Calcutta Discount Co. Ltd., which restricted the Tribunal's jurisdiction to the subject matter of the appeal. Similar principles were upheld in other cases like R. L. Rajgharia v. ITO and New India Life Assurance Co. Ltd. v. CIT, emphasizing that the Tribunal's powers are confined to the grounds of appeal unless expanded by additional grounds with leave.

The court also considered the Supreme Court's decision in State of Kerala v. Vijaya Stores, which stated that the respondent could support the judgment on any ground but could not raise a ground adversely affecting the appellant. The High Court found that the Tribunal was justified in disallowing the Rs. 1,00,004 because the assessee had switched to a mercantile system for bonus payments, and the cash payment did not align with this system for the year under consideration. The Tribunal's decision was consistent with the interconnected nature of the accounting systems and the allowable deductions.

Conclusion:
The High Court concluded that the Tribunal was justified in not allowing the Rs. 1,00,004 as a permissible deduction for the assessment year 1971-72. The Tribunal's decision to allow a further deduction of Rs. 19,940 was upheld, and the question was answered in the negative, in favor of the Revenue. There was no order as to costs.