Commissioner Of Income Tax v. Bharat Petroleum Corporation Limited

1. Two questions of law arise for determination in this appeal. They are as follows :

"(a) Whether the assessee was entitled to claim deduction in respect of excise duty and customs duty paid during the accounting year relevant to the assessment year 1985-86 as deduction in view of Section 43B of the Income Tax Act, 1961

(b) Whether the Department was right in disallowing the assessees claim for deduction of Rs. 2,60,283 being staff sports and welfare expenses under Section 40A(9) of the Income Tax Act "

2. The appeal came for admission on March 14, 2001. It was heard at length. It was dismissed for reasons to be subsequently given. Hence, the following reasons are being given.

Facts OH question No. 1 :

3. Bharat Petroleum Corporation Limited, a Central Government undertaking is the assessee. In this appeal we are concerned with the assessment year 1985-86. In the computation of income, the assessee claimed deduction of Rs. 12,62,47,225 under the head "Excise and customs duty paid" on the closing stock as on March 31, 1985. The financial year during which the duties were paid was 1984-85. The said amount was also shown in the balance-sheet under the caption "prepaid taxes" as current assets. The Assessing Officer held that the assessee was not entitled to claim deduction because for the earlier assessment year 1984-85 also, the claim was disallowed. Basically, the Assessing Officer disallowed the claim for deduction on the ground that the assessee had not debited Rs. 12,62,47,225 to the profit and loss account in respect of the goods falling in the closing stock nor was the said amount included in the value of the closing stock. Being aggrieved by the decision of the Assessing Officer, the assessee went in appeal. The first appellate authority rejected the appeal. Being aggrieved, the matter was carried in appeal by the assessee to the Tribunal. Following the judgment of the Gujarat High Court in the case of Lakhanpal National Ltd. v. ITO : [1986]162ITR240(Guj) , as also the judgment of the Tribunal in ITO v. Food Specialties Ltd. [1994] 206 ITR 119, the Tribunal allowed the appeal and held that the entire amount was an allowable deduction in view of the fact that the assessee had actually paid, during the year in question, Rs. 12,62,47,225. Being aggrieved, the Department has come in appeal under Section 260A of the Income Tax Act.

Findings on question No. 1 :

4. The facts brought on record show that during the financial year 1984-85 relevant to the assessment year 1985-86, the assessee actually paid a sum of Rs. 12,62,47,225. The said amount was a part of the closing stock as on March 31, 1985. As per the decision of the Gujarat High Court in Lakhanpal National Ltd.s case : [1986]162ITR240(Guj) , excise and customs duty paid and included in the closing stock are allowable deductions from the income. That, Section 43B does not bar such deductions. However, such deductions are subject to payment being added to the opening stock in the relevant subsequent year. We respectfully agree with the judgment of the Gujarat High Court in Lakhanpal National Ltd.s case : [1986]162ITR240(Guj) . This is a pure finding of fact. The Commissioner of Income Tax (Appeals) has also accepted that the aforestated amount is a part of the closing stock. In view of the concurrent finding of fact, no substantial question of law arises. Hence, the first question is answered in the affirmative, i.e., in favour of the assessee and against the Department.

Facts on question No. 2 :

5. For the aforestated assessment year 1985-86, the Assessing Officer disallowed Rs. 2,60,283 under Section 40A(9) paid by the assessee for staff welfare activities. The assessee claimed that the entire amount was for staff welfare activity. That, the said amount was a grant for staff welfare activity and that the entire amount was for the benefit of the employees and, therefore, the assessee claimed deduction as business expenditure under Section 28. However, the Department rejected the assessees claim on the ground that a club known as Trombay Club was incorporated by the assessee for social, cultural and recreational activities of its members who were required to pay subscription fees. Hence, the Assessing Officer as also the Commissioner of Income Tax (Appeals) came to the conclusion that the said amount constituted contribution to the club and, therefore, under Section 40A(9), the claim for deduction was disallowed. Being aggrieved, the assessee went in appeal to the Tribunal which took the view that the aforestated amount represented reimbursement of expenses incurred by a society and, therefore, it did not constitute contribution under Section 40A(9). Being aggrieved by the decision of the Tribunal, the Department has come in appeal.

Findings on question No. 2 :

6. Bharat Petroleum Corporation is a Central Government undertaking. It has incorporated a club, essentially to carry on staff welfare activities. Under Clause 28, Bharat Petroleum Corporation Limited had a right to issue directives to the club which were binding on the club. At times, the members of the club, who were the employees of Bharat Petroleum Corporation, took part in tournaments held outside the club premises like Times shield in cricket. On such occasions, the assessee-Corporation used to reimburse expenses incurred by the club. This is the finding of fact recorded by the Tribunal. In the circumstances, Section 40A(9) is not applicable. No substantial question of law arises. Hence, our answer to the aforestated question No. 2 is in the negative, i.e., in favour of the assessee and against the Department.

7. Accordingly, the Income Tax appeal is disposed of. No order as to costs.