Commissioner Of Income Tax Madurai v. The Tamilnadu State Transport Corporation (Madurai) Ltd Madurai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 21.03.2019 THE HON'BLE DR.JUSTICE VINEET KOTHARIAND THE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case Appeal Nos. 283 and 284 of 2006 Commissioner of Income Tax Madurai.. Appellant in both T.C.A.'s ..Vs.. The Tamilnadu State Transport Corporation (Madurai) LtdMadurai...Respondent in both T.C.A.'s Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'C' Bench, Chennai, dated 05.08.2005 made inI.T.A.No.2599/Mds/95 and I.T.A.No.640/Mds/96 for the AssessmentYears 1991-92 and 1992-93 and against the Commissioner of Income(Appeal-I Madurai, dated 4/9/1995, 21/12/19 made in ITA 138/95-96 and Ita No.848/93-94 and against the Deputy Commissioner ofIncome Tax Special Range-II, Madurai dated 31/01/199531/03/1998, made in PAN NO.49-003-CN-0253/DC.SRII/MDU Assessmentyear 1992-93 and 1991 and 1992. ---- The Revenue has filed these two Appeals, raising theSubstantial Questions of law under Section 260A of the Act,against the order of the learned Tribunal dated 05.08.2005 forthe Assessment Years 1991-1992 and 1992-1993. https://hcservices.ecourts.gov.in/hcservices/ 2. The Appeal in T.C.A.No.283 of 2006, was admitted on07.03.2006, by a Co-ordinate Bench of this Court on thefollowing Substantial Question of Law: "(i) Whether in the facts and circumstancesfor the case, the Tribunal was right in allowingdeduction in respect of contributions to Instituteof Road Transport that were not actually paidduring the relevant previous year? (ii) Whether in the facts and circumstancesof the case the tribunal was right in holding thatthe assessee is entitled to accountingreimbursement claims in respect of studentconcession passes on a cash basis, while it wasgenerally following a mercantile system ofaccounting? 3. The Appeal in T.C.A.No.284 of 2006 was admitted on07.03.2006, by a Co-ordinate Bench of this Court on thefollowing Substantial Questions of Law: "(i) Whether in the facts and circumstancesfor the case, the Tribunal was right in allowingdeduction in respect of contributions to Instituteof Road Transport that were not actually paidduring the relevant previous year? (ii) Whether in the facts and circumstancesof the case the tribunal was right in holding thatthe assessee is entitled to accountingreimbursement claims in respect of studentconcession passes on a cash basis, while it wasgenerally following a mercantile system ofaccounting? (iii) Whether in the fact and circumstancesof the case, the Tribunal was right in holdingthat no additional tax could be levied underSection 143 (1A) in the case of reduction of loss,without applying the provisions of section 143(1A)(B) introduced with retrospective effect from1.4.1989 by the Finance Act, 1993?" 4. The learned counsel for the Revenue Mr.M.Swaminathanurged before us that the deduction claimed by the Assessee inrespect of the contribution of Rs.33,53,400/- towards thecontributions made to the Institute of Road Transport, indicatesthat the scientific research was made by the Assessee, underSection 35(1)(ii) of the Act which pertains to weighteddeduction of one and half times of expenditure incurred, by the Assessee on the Scientific Research Institution, and not underSection 37 of the Act. He, therefore, submitted that since thepart amount of Rs.20,00,000/- was paid by the Assessee after thecompletion of the financial year, the same could not have beenallowed for deduction under Section 35(1)(ii) of the Act. 4. The learned counsel for the Revenue Mr.M.Swaminathanurged before us that the deduction claimed by the Assessee inrespect of the contribution of Rs.33,53,400/- towards thecontributions made to the Institute of Road Transport, indicatesthat the scientific research was made by the Assessee, underSection 35(1)(ii) of the Act which pertains to weighteddeduction of one and half times of expenditure incurred, by the Assessee on the Scientific Research Institution, and not underSection 37 of the Act. He, therefore, submitted that since thepart amount of Rs.20,00,000/- was paid by the Assessee after thecompletion of the financial year, the same could not have beenallowed for deduction under Section 35(1)(ii) of the Act. 5.However, on the other hand, learned counsel for theAssessee Mr.A.S.Sriraman submitted that the part of the totalsum of Rs.33,53,400/- viz., a sum of Rs.20,00,000/- was paid bythe Assessee to the said institution under the directions of theState Government, to which the communication was received by theAssessee only on 25.03.1992 i.e., on the fag end of theFinancial year. Though this amount has been paid after the endof the financial year, since the liability was incurred duringthe financial year relevant to 1992-1993, the same deserves tobe allowed in A.Y. 1992-1993 only. He further submitted that theAssessee has not claimed weighted deduction of one and halftimes as per Section 35(1)(ii) of the Act but only 100% of theactual expenditure incurred by the Assessee and the same oughtto have been allowed as business expenditure under Section 37 ofthe Act, which has been rightly allowed by the learned CIT(Appeals) as well as the Tribunal under Section 37 of the Act.The said contributions were paid to the Institution of RoadTransport on the following dates: Date of Payment16.07.199110.03.199210.08.199212.09.199220.10.1992 9.11.1992 Amount Rs. 3,53,400/- Rs. 10,00,000/- Rs. 5,00,000/- Rs. 5,00,000/- Rs. 5,00,000/- Rs. 5,00,000/- ____________ Rs. 33,55,400/- ___________ 6. From the above, we can see that though the payments tothe extent of Rs.13,53,000/- was made by the Assessee before theend of the previous year i.e, on 31.03.1992 relevant to theAssessment year 1992-1993 and Rs.20,00,000/- on four differentdates in the next financial year 1992-1993, but the Assessee hasnot even claimed weighted deduction under Section 35 (1)(ii) ofthe Act. Though the said provisions have been referred to in theAssessment Order, and the claim of the Assessee was made in thatprovision, but since the Assessee has not claimed weighteddeduction of one and half times but only on the actual totalexpenditure incurred by the Assessee in this year on accrualbasis, since the direction of the State Government for thepayment of Rs.20,00,000/- came just before the end of thefinancial year, therefore, in our opinion, the entireexpenditure in this regard ie., Rs.33,55,400/-, deserves to be allowed in the hands of the Assessee under Section 37 of the Actfor A.Y.1992-1993 in the present case. Therefore, both theauthorities below have rightly allowed the same under Section 37of the Act and the question of applying Section 35 (1)(ii) ofthe Act to the said contributions did not arise, since theAssessee has not claimed weighted deduction for one and halftimes of actual expenses in this regard. Therefore, the firstquestion deserves to be answered against the Revenue and infavour of the Assessee. We hereby do so. allowed in the hands of the Assessee under Section 37 of the Actfor A.Y.1992-1993 in the present case. Therefore, both theauthorities below have rightly allowed the same under Section 37of the Act and the question of applying Section 35 (1)(ii) ofthe Act to the said contributions did not arise, since theAssessee has not claimed weighted deduction for one and halftimes of actual expenses in this regard. Therefore, the firstquestion deserves to be answered against the Revenue and infavour of the Assessee. We hereby do so. 7. As far as the second Question of Law is concerned, thesame pertains to reimbursement of the amount on account ofStudents' Concession Passes given by the Assessee which itselfis a State Government Undertaking and was bound by thedirections of the State Government. The State Government delayedthe reimbursement of the difference of costs on account of suchConcession Passes given by the Assessee to the students totravel in the buses operated by it in the State. The Assesseeadopted the accounting of such reimbursement received from theState Government, on cash basis. The Assessing Authority, onthe other hand, sought to tax such reimbursement amount whichwas even though received in the later years as accrued income inthe present Assessment Year 1992-1993. We find that even thoughthe Assessee, a Government Corporation was usually adopting themercantile method of accounting, but for the Student ConcessionPasses given to the students as per the directions of the StateGovernment, which was reimbursed by the State Government with adelay in later years, the Assessee as a Commercially prudentbusiness organisation, adopted cash basis for accounting for thesame and contended before the authorities below that suchreimbursement received from the State Government should be taxedin the year in which such reimbursement was actually made by theState Government and not on accrual basis in A.Y.1992-1993.There is no statutory compulsion on the part of the Assessee toaccount for all its income on accrual basis only, but even amixed or a hybrid system of accounting can be adopted by theAssessee. The only thing is that such method of accountingshould be consistently adopted by the Assessee. Since, thereimbursement of Students' Concession Passes, was the issuearising in this year for the first time only, the assesseecannot be faulted in adopting cash basis for accounting for suchreimbursement from the State Government in its Profit and LossAccounts on cash basis. Since the reimbursement by the State forthese Assessment Years admittedly were not received during theseAssessment years, the same cannot be taxed in these years. Thelearned Tribunal as well as the CIT (A) in our opinion rightlyallowed this practice to be adopted by the Assessee on accountof reimbursement only for cash basis. Therefore, the SecondQuestion of Law also deserves to be answered as against theRevenue and in favour of the Assessee. 8. In view of the aforesaid finding, we do not find thatany merit in these Appeals filed by the Revenue and the same aredismissed. No order as to costs. Sd/- Assistant Registrar(CS VIII) arr //True Copy// Sub Assistant Registrar To1. Deputy Commissioner of Income Tax, Special Range-II, Madurai.2. Commissioner of Income-Tax (Appeals), Madurai.3. Assistant Registrar, Income Tax Appellate Tribunal, C Bench, Chennai. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.27040 TCA Nos.283 and 284 of 2006VG II(CO) RRS(08/05/2019)