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TMI Blog1987 (3) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ourts. Subsequently, the High Courts of Calcutta and Delhi rejected the contentions of the employers and held that all categories of employees mentioned in the substituted section 2(9) of the Employees' State Insurance Act would be employees within the meaning of the said Act. The High Court at Madras and the Employees' Insurance Court, Bombay, took a different view and the Employees' State Insurance authorities preferred appeals from the said decisions. M/s. Shalimar Chemical Works (P) Ltd., Calcutta, the assessee, is a limited company carrying on business of manufacturing of chemicals. The assessee came within the mischief of the substituted section 2(9) of the Employees' State Insurance Act and became liable to contribute for such insurance to the Employees' State Insurance Corporation on and from January 28, 1968. The assessee, however, did not make any contribution as required under the substituted section nor did it initiate any proceedings challenging the substituted section 2(9) in any court. The assessee, however, kept watching the proceedings taken by other employers as aforesaid. After the decisions of several High Courts on the controversy as aforesaid, the Employees' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the statute during the earlier period and as the assessee was following the mercantile system of accounting, it could not claim any deduction of the liability for the earlier years in the assessment year in question. The Tribunal found that the letter of January 9, 1974, from the Employees' State Insurance authority was in the nature of a demand for payment of contribution by the assessee and that such demand was made after an inspector of the Employees' State Insurance Corporation inspected the establishment of the assessee. But the Tribunal, following, inter alia, the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. [1971] 82 ITR 363, held that the assessee was not entitled to claim the deduction of the said amount in the relevant assessment years as the liability to pay contribution arose for a period earlier to the assessment year involved. The Tribunal held that the liability to pay contribution had accrued under the State Employees' Insurance Act and did not depend upon the quantum to be determined or any demand from the authorities concerned. On an application of the assessee under section 256(1) of the Incometax Act, 1961, the following qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from April, 1956, to November, 1958, and claimed deduction in respect of the same in the assessment year 1961-62. On these facts, it was held by the Allahabad High Court that as there was a dispute as to from which period the assessee was liable to contribute to the provident fund, the assessee was under no liability to make a deposit for the said period till the dispute was determined by the competent authority. The dispute having been determined in 1960 during the relevant year of account, the liability to pay such contribution was irrevocably incurred and the payment was debited in the said year. The assessee was held to be entitled to the deduction claimed. (b) CIT v. Orient Supply Syndicate [1982] 134 ITR 12 (Cal). The assessee in this case, following the mercantile system of accounting, claimed deduction under the head " Provident Fund Contribution " which related to years earlier to the relevant accounting year. It was found as a fact that though the assessee was under a statutory liability to contribute to the employees' provident fund under the Employees' Provident Funds Act, the same was never enforced in the earlier years and only in the year involved, the Regional P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnath lute Manufacturing Co. Ltd. [1971] 82 ITR 363 and held that the principles laid down in the said decision were limited to cases where the demand had been raised by the sales tax authorities before the income-tax assessment had been actually completed. The liability which was settled before the income-tax assessment was completed could be appropriated to the relevant year but if the demand was raised long afterwards, it could not be appropriated to the earlier year and had to be claimed at a later date or not at all. Learned advocate for the Revenue contended to the contrary. He submitted that the law on the controversy was settled by the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. [1971] 82 ITR 363 and the principles laid down therein were applicable in the facts and circumstances of this case. He submitted that different High Courts had, in similar facts and circumstances, applied the decision in Kedarnath Jute Manufacturing Co. Ltd. In support of his contention, learned advocate for the Revenue drew our attention to the following decisions: (a) Sheveroy Estates Ltd. v. Government of Tamil Nadu [1981] 132 ITR 214 (Mad). The matters in issue and the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a permissible deduction. From the facts found, it appears that though the Employees' State Insurance Act was extended to cover categories of employees who were working outside the factory under the said Act No. 44 of 1966, the Employees' State Insurance authorities did not take steps to enforce the extended provisions of the Act inasmuch as the same was challenged by a number of employers in different High Courts as also in other forums. The assessee admittedly did not initiate any proceeding on its own but maintained watch on the proceedings which were pending. The Employees' State Insurance authorities also kept the demand in abeyance possibly as the matter was sub judice. It was only after the High Courts of Calcutta and Delhi upheld the validity of the extended provision of the Employees' State Insurance Act that the Employees' State Insurance authorities revived their demand under the amended provision and called upon the assessee to comply with the demand. In the aforesaid facts and circumstances of the case, it appears to us that the principle laid down by this court in Orient Supply Syndicate [1982] 134 ITR 12, becomes applicable. The statutory liability no doubt wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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