Commissioner Of Income Tax v. M/S The Nainital Bank Limited, Nainital

IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Appeal No. 39 of 2009 Commissioner of Income Tax ……….. Appellant Versus M/s The Nainital Bank Limited, Nainital ……….. Respondent Present: Mr. H.M. Bhatia, Advocate for the appellant. Mr. S.K[. Posti, Advocate for the respondent. ] Coram: Hon’ble Barin Ghosh, C.J.Hon’ble Servesh Kumar Gupta, J. BARIN GHOSH, C.J. (Oral) During the relevant assessment year, a premium of `1,10,00,000/- was paid by the assessee to the Life Insurance Corporation of India as and by way of premium for obtaining a policy to cover the leave encashment due to its employees, which will accrue in future. The Assessing Officer felt that since no expenditure was incurred by the assessee during the relevant assessment year on account of payment of leave encashment to the employees of the assessee, the claim for deduction of the said payment is not permissible under Section 43B(f) of the Income- Tax Act, 1961 read with Explanation 3B thereof and, accordingly, added the said payment with the disclosed taxable income. Assessee having lost before the Appellate Authority went to the Tribunal and succeeded. The Tribunal held that the payment, thus made, is covered under Section 37 of the Act. Hence the present appeal. 2. Section 37 of the Act to the extent, with which we are concerned here, is as follows:- “Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession.” 3. Therefore, in order to come within the provisions of Section 37 of the Act, the expenditure must not be (i) an expenditure of the nature described in Sections 30 to 36 of the Act, (ii) is not in the nature of capital expenditure and (iii) is not an expenditure in the nature of personal expenses of the assessee, and (iv) has been spent wholly and exclusively for the purpose of the business or profession of the assessee. 4. It is not in dispute that the payment of the premium in question is not an expenditure of the nature described in Sections 30 to 36. In order to show that the expenditure was not in the nature of capital expenditure or personal expenses of the assessee and had been spent wholly and exclusively for the purpose of business or profession, reference was drawn to Section 43B(f) of the Act, inasmuch as, Section 43B contains non -obstante provision and there in Clause (f) payment by the assessee as employer in lieu of any leave to the credit of its employees has been recognized as a revenue expenditure and has been certified as an expenditure not for personal expenses of the assessee and that the same is wholly and exclusively for the purpose of the business or profession of the assessee. A cover obtained to discharge such recognized obligation will not come under Section 37 of the Act is not accepted. 5. That being the situation, there is no scope of interference. The appeal fails and the same is dismissed. (Servesh Kumar Gupta, J.) (Barin Ghosh, C.J.) 26.12.2013 26.12.2013