2016 (1) TMI 1033 - HC - Income Tax

Provision for increment - Held that - As the provision was made for known liability and therefore the approach by ITAT cannot be said to be unjust. Overloading charges - Held that - The overloading charges or under loading charges are payable in terms of contract between the parties and it is not an offence. It is purely a commercial transaction. In this situation, we do not find any substantial question of law arising as the ITAT has allowed payment of overloading charges as expenditure which can be deducted under Section 37 of the Income Tax Act, 1961. Compensation expenditure - revenue v/s capital - Held that - Since the acquisition of land results into displacement of land owners, as per the policy of resettlement and rehabilitation for land outstees, they are to be given employment in the assessee company and till such employment is given the assessee company is liable to pay subsistence allowance at the rate of ₹ 2,500/per month per person. It has no corelation with area or extent of land acquired. The company, as a prudent measure, has evolved the policy to pay a lump sum consideration to such land oustees in lieu of employment. If the company is not in a position to provide employment, then only the subsistence allowance at the rate of ₹ 2,500/was/ is being paid. Thus, this subsistence allowance is a liability which arises only after the land is acquired if employment cannot be offered. Therefore, the ITAT has rightly accepted it as the Revenue expenditure.

Summary

Issues:
1. Provision for increments based on National Coal Wage Agreement (NCWA)
2. Overloading charges paid to railways
3. Compensation expenditure for land acquisition

Provision for Increments based on NCWA:
The High Court addressed the issue of provision for increments made by the assessee based on the National Coal Wage Agreement (NCWA). The court noted that the provision was made for a known liability as negotiations for the NCWA were ongoing, and the wage rise was inevitable. The liability was certain and would crystallize after the finalization of the NCWA. The Income Tax Appellate Tribunal's approach was considered just, and no substantial question arose in this regard.

Overloading Charges Paid to Railways:
Regarding overloading charges paid to the railways, the court observed that the percentage of overloading charges compared to normal loading charges was minimal. The charges were not paid deliberately, as explained by the assessee's advocate due to the mechanical process of loading coal. The court found that the ITAT correctly appreciated the situation, emphasizing that overloading charges were payable under the contract and were not an offense. The ITAT allowed the payment of overloading charges as deductible expenditure under Section 37 of the Income Tax Act, 1961.

Compensation Expenditure for Land Acquisition:
The court examined the compensation expenditure for land acquisition, which the Revenue contended was capital in nature. The assessee argued that the expenditure was paid to avoid litigation and displacement of affected persons, following a policy of resettlement and rehabilitation for land outstees. The court agreed with the ITAT's finding that the subsistence allowance paid by the assessee was a liability arising only after land acquisition if employment could not be provided. The ITAT correctly treated it as revenue expenditure, and no substantial question of law arose in this regard.

In conclusion, the High Court found no substantial question of law in the matters at hand and dismissed the appeals without costs.