M/S HYDERABAD ALLWYN LTD.HYD. V. THE COMMISSIONER OF INCOMETAX.HYD.

RC/170/2000

AI Insights

The case involves a company owned by the Government of Andhra Pradesh, which sought deductions for gratuity and foreign exchange fluctuations for the assessment years 1988-89 and 1989-90 under Section 115J of the Income Tax Act, 1961. Initially, the Assessing Officer denied these deductions as no provisions were made in the profit and loss account for those years. The Commissioner of Appeals allowed the appeal, but the Income Tax Appellate Tribunal reversed this decision. The company then sought a reference to the High Court on three questions regarding the entitlement to these deductions and the implications of not providing for them in the accounts. However, the court did not answer these questions due to the company's liquidation and the non-appearance of the Official Liquidator.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 727404 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 02-09-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Book Profits; Foreign exchange fluctuation; Gratuity deduction; Liquidation
• Section: 256; 115J

Judgement Text

"THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C.No.170 of 2000 ORDER: (per the Hon’ble Sri Justice L.Narasimha Reddy) This reference is made under Section 256 of the Income Tax Act, 1961 (for short, ‘the Act’) by the assessee. The applicant is a company owned by the Government of Andhra Pradesh. For successive assessment years, it has been seeking deduction of gratuity and the amount representing fluctuations in the foreign exchange. It was also maintaining books of account and the assessment was being made by making reference to Section 115J of the Act. For the Assessment Years 1988-89 and 1989-90, the applicant did not mention the figures referable to the gratuity and the amount representing the fluctuation in the foreign exchange in the books of account, for those years. No provision was made for claiming deduction of those two amounts. The result was that a higher amount of profit was shown excluding these amounts. At the stage of assessment, the applicant insisted that the amounts referred to above, must be deducted from the income. The Assessing Officer did not agree for that on the ground that provision was not made for these two amounts in relevant profit and loss account. The matter was carried in appeal before the Commissioner of Appeals. The appeal was allowed by the Commissioner. Aggrieved by that, the Revenue carried the matter in further appeal to the Hyderabad Bench ‘A’ of the Income Tax Appellate Tribunal by filing I.T.A.Nos.299/Hyd/92 and 1775/Hyd/92. The appeals were allowed by the Tribunal through its order dated 25.11.1997. Aggrieved by the order in the appeal, the applicant filed R.A.Nos.77/Hyd/98 and 78/Hyd/98 under Section 256 (1) of the Act with a prayer to refer the following three questions to this Court for answer: 1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in coming to the conclusion that the assessee-company is not entitled to claim deductions towards gratuity liability and extra depreciation on additional cost due to additional liability owing to exchange fluctuations from its profits as per its books while computing book profits u/s.115J of the I.T.Act? 2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in coming to the conclusion that merely because the gratuity liability and depreciation were not provided or written off in the accounts, the assessee-company is not entitled to claim deduction of the same in computing the book profits while applying the provisions of S.115J of the I.T.Act? 3. Whether on the facts and in the circumstances of the case, the appellant is entitled to the deduction of the sums of gratuity liability and extra depreciation, as deduction from the profits declared by it for arriving at the correct amount of book profits as provided under parts (ii) and (iii) to Schedule VI to the Companies Act for computing its income chargeable to tax u/s.115J of the I.T.Act? Accordingly, the reference is made to this Court. Heard the learned counsel for the parties. The questions that are referred to this Court are no doubt important in their purport. However, we decline to answer them for two reasons. The first is that the company is under liquidation and in spite of notice being issued to the Official Liquidator, he did not turn up. The second is that the answer given, one way or the other, is not going to have much impact since the company is under liquidation. L.NARASIMHA REDDY, J Date: 02.09.2014 CHALLA KODANDA RAM, J va "