Case No: Application Nos. 43, 44, 46, 47 and 48 of 1994
Judge: Syed Amirul Islam ,
Court: Appellate Division ,,
Advocate: Mr. Abdur Rahim Bhuiyan,Mr. Altaf Hussain,,
Citation: 53 DLR (2001) 209
Case Year: 2001
Appellant: Titas Gas Co. Ltd.
Respondent: Commissioner of Taxes
Subject: Income Tax, Fiscal Law,
Delivery Date: 2000-6-14
High Court Division
(Statutory Original Jurisdiction)
Syed Amirul Islam, J.
AKM Shafiuddin, J.
Titas Gas (T & D) Co. Ltd.
Commissioner of Taxes
June 14, 2000
Income Tax Ordinance (XXXVI of 1984)
The DCT without pointing out any defect whatsoever in respect of the audited accounts of the assessee disallowed certain deductions on omnibus grounds which are not sustainable in law.
Cases Referred To-
Sagorika and Co. Vs. Commissioner of Taxes 27 BTD 87; Commissioner of Taxes Vs. Mysore Commercial Chemical Co. Ltd. 126 ITR 340 and the Case of CIT Vs. Johanson Pumps (India) Ltd. 172 ITR 333; Md Umar Vs. CIT, Bihar 101 ITR 525; 45 ITR 24, 119 ITR 431, 137 ITR 285 and 827; Meghna Petroleum Co Ltd Vs. CIT 50 DLR (AD) 165, 26 BTD (AD) 74; Commissioner of income Tax Vs. SRA Reddier 205 ITR 426
Md. Altaf Hossain, Advocate—For the Applicant.
Md. Abdur Rahim Bhuiyan, Assistant Attorney General—For the Respondent.
Application Nos. 43, 44. 46, 47 and 48 of 1994
As common question of law and facts are involved in these reference applications and the parties being same they are heard together and are being disposed of by this judgment.
2. Reference application No.43 of 1994 relates to the assessment year 1985-86 and arises out of judgment and order dated 21-3-94 passed in ITA No. 860 of 1989-90 (Assessment year 1985-86) by the Taxes Appellate Tribunal Division Bench 1, Dhaka.
3. Reference application No.44 of 1994 relates to the assessment year 1986-87 and arises out of an order dated 21-3-1994 passed in ITA No. 861 of 1989-90 (Assessment year 1986-87) by the Taxes Appellate Tribunal, Division Bench 1, Dhaka.
4. Reference application No.46 of 1994 relates to the assessment year 1988-89 and arises out of an order dated 21-3-94 passed in ITA No. 386 of 1992-93 (Assessment year 198 8-89) by the Taxes Appellate Tribunal, Division Bench-1, Dhaka.
5. Reference application No. 47 of 1994 relates to the assessment year 1989-1990 and arises out of an order dated 21-3-1994 passed in ITA No. 385 of 1992-1993 (Assessment year 1989-90) by the Taxes Appellate Tribunal, Division Bench 1, Dhaka.
6. Reference application No. 48 of 1994 relates to the assessment year 1990-91 and arises out of an order dated 21-3-94 passed by the Taxes Appellate Tribunal, Dhaka, Division Bench-1, Dhaka in ITA No. 79 of 1993-94 (Assessment year 1990-1991).
7. In all these reference applications the following questions have been formulated for our opinion:
(i) Whether the Taxes Appellate Tribunal was justified in not directing the Deputy Commissioner of Taxes to accept the accounts in its entirety as per section 82(1) of the Income Tax Ordinance, 1984.
(ii) Whether the Taxes Appellate Tribunal failed to take notice that the DCT did not come to any finding that the entry in the books of accounts was not correct or that the assessee was not employing a method of accounting or that such a method had been irregularly employed by the assessee or that the DCI has come to any finding that there has been no material before the DCT on the basis of which it could be said that the trading results were not verifiable and that, therefore, the account should not be acceptable;
(iii) Whether, the Taxes Appellate Tribunal was justified in maintaining addition of Taka 1,20,50,664.00 as excess perquisites under section 30(e) of IT Ordinance of 1984.
(iv) Whether the Taxes Appellate Tribunal was justified in law in partially maintaining disallowance from profit and loss accounts in respect of the following expenses:
(b)Traveling expenses Taka 50,000.00
(c) Repair and maintenance of vehicles Taka 7,00,000.00 in spite of the fact that Assessee Company maintained all the vouchers and the DCT could not find out any specific defect;
(v) Whether the Taxes Appellate Tribunal was justified in law in not allowing rebate of tax as Industrial Tax Company. And in respect of Reference Application Nos. 46 of 1994, 47 of 1994 and of 1994 the following additional questions have been formulated, namely, “Addition of Jamuna Bridge Levy”. And in Reference Application Nos. 46 of 1994 and 48 of 1994 another question has been added as to the disallowance in profit and loss account and these questions have been formulated in the following terms:
The aforesaid questions are common with variation in figures only.
8. Mr. Altaf Hossain, the learned Advocate appearing for the assessee-applicant, submits that the DCT in flagrant violation of the provisions of section 35(3) of the Income Tax Ordinance rejected the book version of the assessee-applicant without arriving at any finding that the method of accounting employed by the assessee-applicant has not been regularly employed or the method employed was such that the income of the assessee could not be properly deduced therefrom and, as such, he acted illegally and without jurisdiction in rejecting the audited account of the assessee applicant. The learned Advocate further submits that the DCT without pinpointing any defect in respect of the accounts maintained by the assessee applicant arbitrarily rejected certain items illegally which is not sustainable in law and in support of his Contention he relies on the decision of the Case of Sagorika and Co. Vs. Commissioner of Taxes reported in 27 BTD 87. The learned Advocate then submits that the DCT has committed illegality in computing excess of perquisites in each of the years under consideration inasmuch as the benefits conferred on the employees do not amount to perquisites within the meaning of perquisites as defined in section 2(45) of the Ordinance and he submits that any benefit given to an employee in kind, amount to perquisites but any benefit given in cash forms part of the salary and in support of his contention he relies on the Case of Commissioner of Taxes Vs. Mysore Commercial Chemical Co. Ltd. reported in 126 ITR 340 and the Case of CIT Vs. Johanson Pumps (India) Ltd. reported in 172 ITR 9. Mr. Md Abdur Rahim Bhuiyan, the learned 333, where it has been laid down that any benefit given to an employee in kind amounts of perquisites but any benefit given in cash becomes a part of his salary. The learned Advocate further submits that the assessee company answers the description of an industrial company is involved in the exploration and extraction of gas and distribution thereof and, as such, both the DCT, AJCT and the Tribunal taking an erroneous view of law disallowed the rebate to the assessee company which it is entitled to enjoy as an industrial company. The learned Advocate further submits that the DCT taking an erroneous view of law did not allow the gratuity inasmuch as the assessee-applicant maintain their accounts on the mercantile basis and, as such, when the gratuity becomes due it debited in the accounts of the employees and, as such, no actual payment of the same is required. The learned Advocate further submits that provisions of claiming bad debt has not been followed by the assessee company but since there is huge numbers of defaulters of the assessee-applicant 2-1/2% of the overdue bad debts are deducted and this has been a long standing practice and in that view of the matter this amount ought to have been allowed by the DCT The Advocate referring to section 3 of Ordinance No 43 of 1985 submits that the assessee-applicant had to pay Jamuna Levy on its interest but that amount has not been deducted from the total income of the assessee company and in doing so the DCT as well as the Tribunal has committed an illegality inasmuch as the amount by way of Jamuna Levy was taken away by the Government before the Income reached the assessee and, as such, in respect of the Jamuna Levy the doctrine of diversion of income by over riding title is attracted. The learned Advocate finally submits that the DCT as well as the Tribunal has committed illegality in maintaining disallowances from profit and loss account in spite of the fact that the assessee company maintained all vouchers and the DCI could not find out any specific defect and, as such, the entire accounts ought to have been accepted by the DCT under section 82 of the Ordinance.
9. Mr. Md. Abdur Rahim Bhuiyan, the learned Assistant Attorney-General, appearing for the respondent, on the other hand, submits that mere compliance with the provisions of section 36(3) of the Ordinance is not sufficient for compelling the DCT to accept an audited accounts of the assessee company inasmuch as under section 83(1) of the Ordinance the assessee is to produce evidence in support of the return and in the instant Case the DCT issued notice under section 83(1) of the Ordinance and, as such, examination of the materials and documents produced by the assessee-applicant determined total income on the basis of the materials produced before him and thereby he has not committed any illegality whatsoever in disallowing certain claims. The learned Assistant Attorney-General after going through the decision relied on by Mr. Altaf Hossain in support of his contention that anything paid in cash does not amount to perquisite, finds it difficult to support the impugned order on that point. The learned Assistant Attorney-General submits that in the instant Case huge numbers of defaulters of the assessee- applicant has failed to comply with the provisions of law for claiming bad debts and, as such, taking a correct view of law and facts the DCT as well as the Tribunal rightly disallowed the deduction named by the assessee applicant on account of written off bad debts. The learned Assistant Attorney-General further submits that in respect of Jamuna Levy the DCT and the Tribunal taking a correct view of law and facts rightly disallowed the same inasmuch as that amount was paid by the assessee applicant after accrual of the interest income and that amount was not a charge upon the income.
10. We have perused the applications, applications for amendment and the papers annexed therewith including the impugned orders. We have also considered the submission made by the learned Advocates for the respective parties. On a perusal of the order of the DCT it appears that he without pointing out any defect whatsoever in respect of the audited accounts of the assessee disallowed certain deductions on omnibus grounds and, as such, the said disallowances are not sustainable in law. In support of his contention Mr Hossain relies on the case of Md. Umar Vs. CIT Bihar reported in 101 ITR 525 wherein it has been held by the Patna High Court that the only two defects found by the Income Tax Officer for rejecting the book profits were that in the absence of cash memos, the sales were not verifiable and that certain transactions were noted in lump sums. No finding was recorded by departmental authorities as to unacceptability of the method and irregularity of the account kept by the assessee. It is well settled that in the absence of such a finding recorded by the authorities, the book results cannot be ignored or brushed aside. The learned Advocate also relied on the case of Sagorika and Co. (Pvt.) Ltd. Vs. Commissioner of Taxes reported in 27 BTD 87 wherein the same view was taken by a Division Bench of this Court wherein one of us was a party. The legal position is that in the computation of income profit and gains of company the DCT is entitled to reject the books of accounts if he is of the opinion that no method of accounting has been regularly employed by the assessee or if the method employed is such that the income of the assessee cannot be properly deduced therefrom or that a company has not complied with the requirement of sub-section (3) of section 35 of the Ordinance. In instant Case it is found that the assessee applicant has complied with the requirements of section 35(1) of the Ordinance and there is no finding whatsoever that the method of accounting employed by the company is not regularly employed or that the method employed is such that the true income of the assessee cannot be properly deduced therefrom. In the absence of any such finding the DCT was not at all authorised in law to reject the accounts of the assessee and in affirming the order of the DCT the Tribunal totally ignored this legal aspect of the Case. Here it may further be mentioned that the First Appellate order of the AJCT is an extremely unhappy one and the same is not a speaking order. It appears that the AJCT in dismissing the appeal and affirming the order of the DCT did not at all apply his judicial mind to the facts and circumstances of the Case. Here it may further be mentioned that section 83(1) of the Ordinance requires that where a return or revised return has been filed by a person under Chapter VIII of the Ordinance and the DCT is not satisfied with the income shown in the return or with the accounts or evidences submitted with the return, he shall give a notice to such person in writing specifying therein the defects or shortcoming in the return or any other reasons for the dissatisfaction so as to provide an opportunity to the person to furnish in writing his explanation or clarification for rectifying or removing the defects or shortcoming or the reason for dissatisfaction. It appears that notice under section 83(1) was served on the assessee applicant but nothing is reflected either in the assessment order or from any other documents whatsoever as to the ground for dissatisfaction of the DCT for service of notice under section 83(1) of the Ordinance. Be that as it may, for the reasons assigned above we are of the opinion that in the instant Case the DCT, AJCT and the Tribunal illegally and without jurisdiction rejected the audited accounts of the assessee applicant, inasmuch as, no specific defect could be detected by the authority in respect of the accounts.
11. The perquisite has been defined in section 2(45) of the Ordinance and salary has been defined in section 2(58) of the Ordinance and it is now well settled that both these definitions are exclusive definitions. Section 30(e) of the Ordinance however, makes a provision that so much of the expenditure made by the assessee on the provisions of perquisite or other benefits to any employee as exceeds 50% of the salary excluding perquisite and other benefits of such employee is allowable expenses. Thus, it appears that while computing the perquisites or other benefits the amount spent by the assessee as perquisite or other benefits to an employee is excluded from the definition of salary although in the definition of salary perquisite paid in lieu of or in addition to salary is included. Now the question that calls for determination is what benefits can be termed as perquisites and in order to determine the same issue we are to find out what is 12. We have perused section 3 of Ordinance the connotation of the word “perquisite in section No. 45 of 1985 and from a perusal of the same it 2(45) of the Ordinance. There is an inclusive definition of “perquisite” but perquisite as such has assessee not been defined in the Ordinance. However, according to the Oxford English Dictionary perquisite means casual profit additional to normal revenue or emolument; thing that has served in primary use and to which subordinate or servant has then a customary right, incidental benefit attaching to employment etc; customary, gratuity, thing to which person has sole right.” All perquisites denote personal advantage it is something which benefit goes into his own pocket. But it does not cover a mere reimbursement, be it by way of allowance or other expenditure. On a perusal of the inclusive definition of perquisite as embodied in section 2(45) of the Ordinance it appears to us that the items of expenditure which have been termed by the DCT as perquisite do not, in fact, qualify as perquisite because they are benefits provided to the employee but not income in cash. Of all the items it appears to us that only expenses incurred for uniform and keds provided to the employee can be treated as perquisite but admittedly this amount does not exceed 50% of the salary of the staff or employees of the assessee applicant. One of the essential requirement of perquisite is that the perquisite must accrue to an employee but in Case of Group Insurance Premium, Staff Welfare, Titas Scholarship and Welfare Activities carried on by the assessee applicant for its staff and their employees no benefit accrues to any particular employee but they are general in nature and someone gets the benefits while others do not and there is no identifiable beneficiaries. Therefore they do not amount to perquisites. In this connection Mr. Altaf Hossain relied on the decisions reported in 45 ITR 24, 119 ITR 431, 137 ITR 285 and 827 and submitted that in these Cases it has been held that any benefit paid in cash to an employee do form part of the salary and not a perquisite. In that view of the matter, it appears to us that the DCT, AJCT as well as the Tribunal committed an illegality in disallowing admissible expenses incurred by the assessee company on these heads.
12. We have perused section 3 of Ordinance No.45 of 1985 and from a perusal of the same it appears that the Jamuna Levy is realised by the Government from interest income of an assessee directly before it reaches to the assessee and in view of the decision of our Appellate Division in the case of Meghna Petroleum Co. Ltd Vs. CIT reported in 50 DLR (AD) 165, 26 BTD (AD) 74 we are of the opinion that in respect of Jamuna Levy the doctrine of diversion of income by overriding title is attracted in the instant Case and, as such, that amount ought to have been deducted from the total income of the assessee. This aspect of the Case was not considered by the DCT as well as AJCT and the Tribunal.
13. On perusal of the assessment order as well as the impugned order it appears that in writing off bad debts the assessee applicant did not, in fact, follow the provisions of the Ordinance and it is also frankly admitted by the assessee. It thus, appears that the Tribunal rightly affirmed the order of the DCT in that regard.
14. The authorities below did not impose industrial rate of tax on the income of the assessee on the ground that the assessee company is not an industry as it is not turning out any finished product employing any process of industrial nature. But on a perusal of the legal provisions it appears that a company which is engaged in extraction and distribution of gas is an industry. Thus the industrial rate should apply in the instant Case.
15. The DCT disallowed the gratuity being a provision. There is no dispute that the assessee employs mercantile system of accounting. In the Case of an assessee maintaining his accounts on mercantile system a liability accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in Case of amount actually expended or paid. Just as receipts, though not actual receipts but accrued due are brought in for income tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business. Therefore, we do not find any reason why the estimated liability under the gratuity scheme should not be deducted from gross receipts in the profit and loss (P&L) account.
16. The provision for gratuity was disallowed by the DCT on the ground that it was simply a provision for which no deduction can be made. The AJCT did not utter a single word about this. The Tribunal maintained the disallowance on the ground that the provision was not made on actuarial basis. Thus only the payment portion was allowed. It is true that the earlier trend in the Indian Jurisdiction was that the provision for gratuity is allowable if the assessee had worked out on an actuarial valuation of its estimated liability and made provision for such liability not all at once but spread over a number of years. (Section 73 ITR 53 and 132 ITR 559) But that concept has been given a go-by by the Indian Supreme Court in the case of Commissioner of Income Tax Vs. SRA Reddier and Sons reported in 205 ITR 426. In that case it has been held that provision for gratuity is allowable deduction. Besides, we do not find any provision in the Ordinance which prohibits such deduction. Rather the provision made for gratuity is covered by section 29(XXII) of the Ordinance.
17. Accordingly, we answer the question No.2 of the amendment application and question Nos. 2, 3 and 4 of the original reference applications in respect of Reference Application Nos. 43, 44 and 46 of 1994 in the negative and in favour of the assessee-applicant and refrain from answering question No.1 as it is not necessary to answer the same. Similarly, we answer the question No. 2 of the amendment application and the question Nos.2, 4 and 5 of the original application No.46 of 1994 in the negative and in favour of the assessee. In respect of Reference Application No. 47 of 1994 we answer que No.2 of the amendment application and question Nos.2, 4 and 6 in the negative and in favour of the assessee. Similarly, in respect of Reference Application No. 48 of 1994 we answer question No.2 of the amendment application and question No.2, 3, 4 and 5 of the original reference application in the negative and in favour of the assessee. The question relating to the bad debts in these reference applications are answered in the affirmative and against the assessee applicant and we refrain from answering the other questions.
There will be no order as to cost.