Commissioner Of Income Tax-I, Jaipur v. M/S. Instrumentation Ltd., Jaipur

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR ------------------------------------------------------ D.B. Income Tax Reference No. 1/2001 Commissioner of Income Tax-I, Jaipur Vs. M/s. Instrumentation Ltd., Jaipur Date of Judgment : 18.10.2016 HON'BLE MR.K.S. JHAVERI,J.HON'BLE MR.MAHENDRA MAHESHWARI,J. Mrs. Parinitoo Jain, for the revenue.Mr. A. Kasliwal, for assessee. JUDGMENT--------- 1.By way of this reference, the Tribunal has referredthe following issue pursuant to application by theDepartment: Whether on the facts and in the circumstances ofthe case the Tribunal was justified in settingaside the order of the CIT (Appeals) as thepoint of deduction of contingency provisions andrestoring the matter to the IAC (Asstt) forcomputing the income exactly in the same manneras had been done in asstt. Year 1974-75, 75-76and 76-77? 2.Counsel for the appellant-revenue contended that forthe previous year 1974-75, 75-76 and 76-77 reference wasmade however being an old matter, the Department is notin a position to find out the relevant record. 3.The facts of the case are that the assessee companycarried on two types of activities. It supplied goods andalso carried on erection work. This was a compositeactivity of the assesses. The other activity of theassessee was merely supplying the goods, meaning thereby,a purely trading activity. The assessee claimed deductionof Rs. 43,31,869/- @ 5% of the value of the goodssupplied during the year in respect of this type ofactivity known as 'System Sales Contracts'. The IAC(Asstt) held that this was merely a reserve, hence was not an allowable expenditure. On appeal, the CIT (A)following his predecessor's order for the asstt. Year1976-77, disallowed the claim of the assessee. 4.The contention raised in this appeal which was before the Tribunal was as under: “The first ground relates to the disallowance ofRs. 4,781/- representing contribution of theassessee to the fund created for emeloyees'benefit. Sh. Jhanwar, learned representative forthe assessee, argues that the fund was createdfor the first time with effect from 03-10-1972,relevant to the assessment year 1973-74, anddeduction was allowed to the assessee upto theassessment year 1976-1977. In short, thecontention is that for the first time the lowerauthorities have disallowed the claim of theassessee. The CIT(A) has discussed it in para 2.4of his order. He observed that this fund was notrecognised by the department or by any otherauthority of the Central/State Government andthat the credit balance lying with the fund wasmanaged by the persons appointed by the companyitself. He further observes that these facts showthat the payment made to the fund was truly underthe control of the assessee company. This is why,he upheld the order of the IAC (Assessment)disallowing the claiam of Rs. 4,781/-, which theassessee contributed towards the employeesbenefit fund. Shri Jhanwar has drawn ourattention to page 1 Annexure-13 of the paperbook. This is the constitution of the fund knownhas the “Constitution of Instrumentation LimitedEmployees Welfare Fund”. Clause 7 of thisConstitution is material. This Clause defines theconstitution of the Managing Committee. It says;there shall be a Managing Committee of the fundconsisting of CA & PO, as Chairman torepresentativesfromofficers-onefromAdministration and one from shops; and threefrom Workers Union (Officers will be nominated byHOD's and workers representatives by the Union).It is clear from this that the Managing Committeewas not managed only by the officers of theassessee, but the representatives of the workersunion were also included in the Managingcommittee. We, therefore, do not agree with thereasoning of the CIT(A) that the funds were fullycontrolled by the assessee company. We,therefore, delete the disallowance of Rs.4,781/-.” 6.The Tribunal while considering the matter hasremitted back to the IAC (Asstt) for computing the incomefollowing the practice which was followed for theprevious assessment year 1974-75, 75-76 and 76-77. Counsel for the appellant has relied upon the decision inCommissioner of Income Tax Vs. Instrumentation Ltd.,decided on 8.8.1986. However, the said decision is notapplicable to the facts of the case. 7. Counsel for the respondent relied upon the decisionin Commissioner of Rotork Controls India P. Ltd. Vs. CIT, (2009) 314ITR62. In our view, in the well settledprinciple, the Tribunal has not committed any error inremitting back the matter to the IAC (Asstt)forconsideration which has been accepted in the previousyear. 8.In that view of the matter, the reference is answeredin favour of assessee and against the Department. (Mahendra Maheshwari),J. (K.S. Jhaveri),J. BM Gandhi/4