ITAT MUMBAI BENCH ‘F’
TATA Communications Ltd.
versus
Joint Commissioner of Income-tax
IT APPEAL NOS. 3062 & 3438 (MUM.) OF 2003
[ASSESSMENT YEAR 1998-99]
Date of Pronouncement – 05.12.2012
ORDER
N.K. Billaiya, Accountant Member
These cross-appeals by the Revenue and the Assessee are directed against the very same Order of the CIT(A)-24, Mumbai dated 17-2-2003 pertaining to the assessment year 1998-99. As both these appeals were heard together, they are being disposed of with this common order for the sake of convenience and brevity.
2. ITA. No. 3062/Mum/2003 :- Assessee has raised 4 substantive grounds of appeal. Ground No.1 relates to the claim made under section 80IA of the Act in respect of new undertakings commissioned after 1-4-1995. Counsel for the assessee fairly conceded that the issue involved in this ground have been held against the assessee’s own case for the assessment years 1996-97 and 1997-98. That being the fact of the matter, ground No. 1 is dismissed.
3. Ground No. 2 relates to the dis allowance of deduction claimed under section 35D of the Act in respect of amortization of preliminary expenses. Counsel for the assessee pointed out that the claim of the assessee has been allowed by the Revenue from assessment year 2000-2001 by which the Revenue has taken the view that assessment year 2000-2001 is the first year of eligibility. On that view of the matter, the issue involved in this ground of appeal become otiose and the Counsel fairly submitted that he is not pressing this ground of appeal. Ground No.2 is accordingly dismissed.
3.1 Ground No. 3 relates to the dis allowance of deduction claimed under section 37 (1) of the Act in respect of provisions of salaries. During the course of scrutiny assessment proceedings, the Assessing Officer observed that the assessee has debited a provision of Rs. 40.71 lakhs on account of arrears of salary. It was submitted by the assessee that salaries of the employees are revised every 5 years. As the assessee is the Public Sector Undertaking (PSU), the revision of salary depend upon the decision of the Government. It was further explained that the Government set-up a Commission for revision of pay scales of PSUs and the said Commission submitted its report in June, 1999. The Assessing Officer was of the opinion that the assessee has created a provision in the books during the previous year which pertains to arrears of salary from January, 1997 till March, 1999. The Assessing Officer further observed that the liability was not determinable during the previous year, it was determinable and actually arose in June 1999. When the Commission submitted its report. As assessee’s previous year ended on 31.3.1998, the assessee has nowhere of knowing the recommendation of the Commission. The Assessing Officer finally concluded that the assessee is entitled to claim expenditure on actual payment and accordingly, disallowed Rs. 40.71 lakhs. The assessee agitated this matter before the CIT(A) and reiterated that assessee being a PSU the salaries were being paid to the employees as prescribed by the Department of Public Enterprise (DPE). The DPE revised salaries of the employees once in 5 years. Accordingly, employees of the assessee company were due for pay revision w.e.f. 1st January, 1997. It was further explained that pending finalization of pay scales by DPE, provisions were made by the assessee based on the best estimate possible. It was further pointed out that DPE had finally prescribed the revised pay scales during June, 1999. The CIT(A), after considering the facts and the submissions came to the conclusion that the liability to pay salary of Rs. 40.71 lakhs has not crystallized during the previous year relevant to the assessment year under consideration. The CIT(A) concurred with the views of the Assessing Officer and confirmed the dis allowance of Rs. 40.71 lakhs.
4. Aggrieved by this finding of the CIT(A), the assessee is in appeal before us. Counsel for the assessee drew our attention to the decision of National Mineral Development Corporation Ltd. v. Jt. CIT [2006] 98 ITD 278 (Hyd.). Referring to this case, the Counsel submitted that in this case also the assessee is a PSU and drawing our attention to the decision of the Tribunal, the Counsel submitted that the Tribunal has allowed the claim of provision of salary on the basis of impending pay revision. The Counsel further relied upon the decision of the CIT v. Kerala State Financial Enterprise Ltd. [2009] 178 Taxman 449 (Ker.), Western Coal Fields Ltd. v. Asstt. CIT [2009] 124 TTJ 659 (Nagpur) Bench and IBP Company Ltd. v. Asstt. CIT [2003] 129 Taxman 26 (Kol.)(Mag.). The learned Counsel pointed out that all these cases are of the assessees’ who are PSUs.
5. Per Contra, the learned D.R. relied upon the findings of the lower authorities.
6. We have considered the rival submissions and perused the Orders of the lower authorities and also gone through the judicial decisions cited by the Counsel for the assessee. It is not in dispute that salary and wages accrue daily, weekly, fortnightly or monthly as per the contract of the employment. This is so as services is rendered in praesenti, the liability of the employer to compensate the employees for the services rendered also accrues in praesenti. A perusal of the Orders of the lower authorities show that what is actually in dispute is the quantification of compensation. As the assessee is a PSU, the pay revision depends upon the decision of the Government. As the personnel department of the assessee had knowledge of dealing with such pay hikes in the past, the assessee can estimate the quantum of such enhanced liability. The liability was certain and it was just a matter of time when it would arise. What was not certain is, over the quantum of pay high. Assessee took the most prudent decision of making provision of salaries at Rs. 40.71 lakhs. It is also seen that what was provided by the assessee is only 40% of the actual pay hike proposed by the DPE. It is also to be seen that the contract with the employees expired on 31.12.1996 and the assessee has made a provision only for the period of January to March, 1998. The Revenue authorities have disallowed the claim only on the basis that the Commission submitted its report in June, 1999. In our considerate view, what is important is not the date of signing the agreement nor the date of approval granted by the DPE, what is important is the effective date of commencement and on that note we find that the liability is accrued during the year under consideration. It is also to be noted that the provision for salary was not a contingent liability. It was in respect of the outcome of the decision of the DPE. For this proposition, we draw the support from the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 wherein the Hon’ble Supreme Court has held that :
“if a business liability has definite origin in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date, it does not make any difference if the future date on which the liability shall have to be discharged is not certain.”
As facts and circumstances of the present case are identical with the ratio laid down by the Honorable Supreme Court, respectfully following the findings of the Honorable Supreme Court and also the decisions relied upon by the assessee, we direct the Assessing Officer to allow the claim of deduction of provision for salary of Rs. 40.71 lakhs as the services rendered are in presentee. Ground No.3 is accordingly allowed.
7. Ground No. 4 relates to the dis allowance of deduction claimed in respect of provision of OFC charges of Rs. 8,44,12,000/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee has debited the provision amounting of Rs.9,32,12,000/- on account of payment to DOT towards maintenance charges of the Mumbai-Delhi Optical Fibre Link. The provisions so made, were as follows :
