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ANZ GRINDLAYS BANK (now Standard Chartered Grindlays Bank Ltd.) Vs. DEPUTY COMMISSIONER OF INCOME TAX AND ORS.
March, 10th 2016
       IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                  Judgment delivered on: 01.03.2016

+                         ITA 32/2004

ANZ GRINDLAYS BANK
(now Standard Chartered Grindlays Bank Ltd.) .....Appellant
                          versus
DEPUTY COMMISSIONER OF INCOME TAX
AND ORS.                         ..... Respondents

Advocates who appeared in this case:
For the Appellant   : Ms Shashi N. Kapila with Mr Pravesh Sharma
                      and Mr Sanjay Kumar.
For the Respondents : Mr P. Roy Chaudhari, Senior Standing Counsel
                      with Ms Lakshmi Gurung, Ms Easha Kadian,
                      Mr Ishant Goswami and Mr Rajesh Kumar.

CORAM:
JUSTICE S.MURALIDHAR
JUSTICE VIBHU BAKHRU

                              JUDGMENT

VIBHU BAKHRU, J

1.      The present appeal has been filed by Standard Chartered Grindlays

Bank Ltd., formerly known as 'ANZ Grindlays Bank Ltd.' (hereafter the

'Assessee') under Section 260A of the Income Tax Act, 1961 (hereafter

the 'Act') impugning an order dated 29th August, 2003 passed by the

Income Tax Appellate Tribunal (hereafter ,,the Tribunal) in ITA No.

1442/Del of 1997. The said appeal, ITA 1442/Del of 1997, was preferred

by the Assessee against an order dated 14th January, 1997 passed by the

ITA 32/2004                                                      Page 1 of 22
Commissioner of Income Tax (Appeals) [hereafter 'CIT(A)'] in Appeal

No.164/96-97 which in turn was preferred by the Assessee against the

assessment order dated 25th March, 1994 passed in respect of Assessment

Year (AY) 1991-92 .


2.      The controversy involved in the present appeal relates to the denial

of deduction of expenses - by virtue of provision of Section 40(a)(iii) of

the Act -for failure on the part of the Assessee to deduct and deposit Tax

Deducted at Source (TDS) within the prescribed time. This appeal was

admitted on 28th April, 2005 and two questions of law were framed. At

the hearing on 22nd December 2015, the Assessee did not press for one of

the questions as it was stated that it had since obtained relief in respect

thereof. Consequently only the following question of law arises for

consideration:


              "Whether the Income Tax Appellate Tribunal was right
              in law in holding that salaries paid to ex-patriate
              employees overseas on which tax was paid in accordance
              with CBDT Circular dated 685 dated 17/20 June 94 and
              Circular 686 dated 12.8.94, is not permissible as a
              deduction in computation of taxable business income in
              view of the provisions of Section 40 (a)(iii) of the
              Income Tax Act, 1961 read with Article 7 of the Indo-
              UK Double Taxation Avoidance Treaty?"




ITA 32/2004                                                       Page 2 of 22
3.      The aforesaid question has to be considered in the following

context:


3.1     During the relevant period - financial years 1984-85 to 1993-94 -

the Assessee was a non-resident banking company and its principal place

of business was situated outside India. The Assessee also carried on

banking business in India through its branches situated within the

country. During the relevant period, the Assessee seconded some of its

employees from overseas to its branches in India. These expatriate

employees were employed for the business carried on in India. They

received a part of their remuneration by way of salaries and perquisites in

India which were duly reflected in the Profit and Loss Account drawn up

by the Assessee in respect of its Indian operations. The Assessee also

deducted tax at source on so much of the remuneration that was payable

to the aforementioned expatriate employees in India. Undisputedly, such

TDS was deposited with the Government.


3.2     In addition to the remuneration paid to the aforementioned

expatriate employees in India, the Assessee's head office situated

overseas also made certain payments to and/or for the benefit of such

expatriate employees. However, the Assessee did not account for such

payments, which were in the nature of salaries, allowances and


ITA 32/2004                                                       Page 3 of 22
perquisites, in its Profit and Loss Account drawn up in respect of its

business in India. The Assessee neither claimed such payments as a

deduction for the purposes of computing its income chargeable to tax in

India nor deducted any tax under Chapter XVII B of the Act.


3.3     During the relevant period, some of the other non-resident

assessees, who had employed expatriate employees in India, had also not

deducted TDS on payments made to and/or for the benefit of such

employees abroad on an erroneous understanding that payments made

abroad were not subject to withholding tax in India. In order to clarify the

position, the Central Board of Direct Taxes (CBDT) issued a Circular i.e.

Circular No. 685 dated 17/20th June, 1994. By the aforesaid Circular, the

CBDT clarified that all payments made and perquisites provided to

employees overseas for services rendered in India are taxable in India

irrespective of the place where such payments or perquisites have been

made or provided. Accordingly, if the employees have rendered services

in India, the employers are liable to deduct tax at source even in respect

of payment of salary, allowances and perquisites paid and/or provided to

such employees overseas. The said circular also indicated that in order to

encourage immediate voluntary compliance, CBDT had decided that

penalty proceedings under Section 221 and 271C of the Act and



ITA 32/2004                                                       Page 4 of 22
prosecution under Section 276B of the Act would not be initiated in cases

where the employers came forward and paid the entire amount of tax due

under Section 192 of the Act along with interest before 31st July, 1994.


3.4     Pursuant to the aforesaid Circular (CBDT Circular No.685 dated

17/20th June, 1994), the Assessee deposited a sum of Rs.9,69,43,214/-,

being the amount of TDS pertaining to the payments made abroad to

and/or for the benefit of the employees serving in India during the

financial years 1984-85 to 1993-94 and the interest due thereon, with the

Income Tax Authorities.


3.5     The tax and interest deposited by the Assessee was duly verified

and accepted by the income tax authorities and the concerned

Commissioner of Income Tax issued a communication on 11 th November,

1994 duly informing the Assessee that in view of the payments made, no

penalty or prosecution action would be initiated in respect of the

payments made overseas to and/or for the benefit of the expatriate

employees.


3.6     The assessments for the six assessment years from AY 1985-86 to

1990-91 stood concluded as on 28th July, 1994 and, thus, the Assessee

could not claim any deduction on account of the payments made in



ITA 32/2004                                                      Page 5 of 22
respect of the said years. However, the Assessees appeal in respect of

AY 1991-92 was pending before CIT(A) and the Assessee sought to

claim a deduction of an amount of Rs.1,32,46,994/- in respect of

payments made pertaining to the financial year 1990-91. The CIT(A)

rejected the Assessee's claim by holding that such claim could not be

made in appellate proceedings. He also observed that no deduction could

be claimed in view of Section 40(a)(iii) of the Act. He doubted whether

the entire tax due had been paid by the Assessee since the amount of tax

paid would also be includable as income of the employees and, therefore,

have the effect of increasing their income and consequently, the tax

payable thereon. He further observed that it was possible that the salaries

paid to the employees overseas were a part of the head "office expenses".





3.7     On appeal, the Tribunal permitted the Assessee to urge the

additional ground but rejected the same principally as falling foul of

Section 40(a)(iii) of the Act. The Tribunal observed that Section 40 of the

Act is a 'prohibitive' or 'disincentive' provision and, thus, had to be

considered strictly. It held that since no tax had been deducted at source

under Chapter XVII B of the Act within the prescribed time, no deduction

under Section 40(a)(iii) was permissible. The Tribunal was of the view

that a deduction would be permissible only if the provisions of Chapter



ITA 32/2004                                                      Page 6 of 22
XVII B are strictly complied with and TDS is deducted and paid within

the prescribed time. It observed that the CBDT Circular only gave

immunity to the Assessee from penalty and prosecution but did not

remove the disincentive under Section 40 of the Act.


3.8     The Tribunal also referred to Section 40(a)(i) of the Act which

expressly provided that no deduction would be allowed in respect of any

interest, royalty, fees for technical services or other sum chargeable under

the Act which is payable outside India and in respect of which no tax has

been deducted and paid under Chapter XVII B of the Act. The Tribunal

noted that proviso to Section 40(a)(i) of the Act expressly provided that

where tax in relation to any sum mentioned in sub clause (i) of clause (a)

of Section 40 of the Act is paid or deducted in any subsequent year, the

deduction would be allowed in the previous year in which such tax was

paid or deducted. The Tribunal reasoned that since no such similar

provision existed in respect of sub clause (iii) of clause (a) of Section 40

of the Act, no deduction would be permissible for payments which are

chargeable under the head "Salaries" if tax had not been paid or deducted

under Chapter XVII B.


4.      The question whether an assessee is liable to deduct tax at source

on the aforementioned payments made to and/or for benefit of its


ITA 32/2004                                                       Page 7 of 22
employees seconded from its head office situated outside India, is no

longer res integra in view of the decision of the Supreme Court in

Commissioner of Income Tax v. Eli Lilly & Co. (India) P. Ltd.: (2009)

312 ITR 225 (SC). The same is also not a subject matter of dispute in the

present appeal.


5.      It cannot be disputed that the Assessee has paid the tax which it

was required to withhold under the provisions of Section 192 of the Act.

Although before the CIT(A), the Revenue had sought to contend that the

amount paid to the employees has not been verified as it did not form a

part of the Profit and Loss Account submitted by the Assessee, however,

the same is without merit as the communication dated 11 th November,

1994 issued by the Commissioner of Income Tax (hereafter also referred

to as "CIT") duly indicates that the Assessee had made a disclosure of the

payments made outside India for financial years 1984-85 to 1993-94 in

respect of its expatriate employees and further had provided "full details".

The Commissioner of Income Tax had also obtained a report from the

lower authorities and the TDS payments made were duly verified. The

AO had also examined the exchange rates applied by the Assessee while

determining the amount of tax to be deposited. It is only after duly

verifying the relevant facts that the CIT had issued the communication



ITA 32/2004                                                       Page 8 of 22
accepting that no action for penalty or prosecution would be initiated in

respect of the payments made to expatriate employees.


6.      Undisputedly, the entire tax payable on the salaries along with

interest due thereon has been received by the Revenue. Even before us,

Mr P. Roy Chaudhari, learned Senior Standing Counsel for the Revenue

did not dispute that the Assessee had paid the requisite amount of tax.


7.      Concededly, the powers of a CIT (A) are wide and in an Appeal

against an Assessment order, it may confirm, reduce, enhance or annul

the assessment. Thus, in cases where there is dispute as to the material

facts for entertaining a claim, the CIT (A) would be well within his

powers to do so. In the present case, the reliance placed by the CIT (A)

on the decision of Additional Commissioner of Income Tax v.

Gurjargravures P. Ltd: [1978] 111 ITR 1 (SC) is mis-placed as in that

case neither any claim was made before the AO nor was there any

material on record to support the claim. The Supreme Court specifically

noted the same and held that on the facts of that case, the question

referred to the High Court should have been answered in the negative. In

the present case, there is no dispute as to the material facts required for

allowing the deduction as claimed by the Assessee. The TDS paid on the

expenses claimed have been duly verified and the tax on the payments


ITA 32/2004                                                       Page 9 of 22
made which are chargeable under the head ,,Salaries have been recovered

by the Government. The only reason for denying the claim is non-deposit

of TDS within the prescribed time. The TDS having been deposited, there

is no impediment for Assessee to claim the related expense.


8.      In the aforesaid circumstances, the principal issue to be addressed

is whether the provisions of Section 40(a)(iii) disentitles an assessee to

claim a deduction on account of Salaries paid to its employees if the tax is

not paid within the specified time but is paid subsequently. Mr

Chaudhari, learned Senior Standing Counsel for the Revenue has

contended that there are twin requirements to be fulfilled; the first being

that tax should have been deducted under Chapter XVII B of the Act; and

second being that tax should have been paid. He argued that even if the

tax is paid in subsequent years, deduction on account of expenses could

not be allowed because the second condition which is deduction of tax at

the time of payment of the amount as required under Section 192 of the

Act would not be fulfilled. According to him, if the tax is not deducted

and paid within the time prescribed for such deduction or payment under

the relevant provisions, an assessee would not be entitled to claim that it

had deducted or paid the tax under Chapter XVII B of the Act. He also

referred to the decision of the Supreme Court in Eli Lilly & Co. (India)



ITA 32/2004                                                       Page 10 of 22
P. Ltd. (supra) in support of his contention that Section 40(a)(iii) was an

integrated code and Section 40(a)(iii) would have to be read in

conjunction with Section 192 of the Act which required an employer

(assessee) to deduct and deposit the tax payable in respect of payments

chargeable under the head "Salaries".


9.      Mr Chaudhari further supported the Tribunals view that absence

of proviso similar to that as under Section 40(a)(i) also indicated that no

deduction under Section 40(a)(iii) was allowable in case where tax was

not deducted or paid within the prescribed time under Chapter XVII B of

the Act.


10.     In order to address the controversy, it is necessary to refer to the

provisions of sub-clauses (i) and (iii) of clause (a) of Section 40 of the

Act as in force during the relevant period and the same are reproduced

hereunder:


        "40 Notwithstanding anything to the contrary in sections
        30 to 38, the following amounts shall not be deducted in
        computing the income chargeable under the head "Profits
        and gains of business or profession",--

                    (a) in the case of any assessee--
               (i) any interest (not being interest on a loan issued
        for public subscription before the 1st day of April, 1938),
        royalty, fees for technical services or other sum chargeable



ITA 32/2004                                                       Page 11 of 22
        under this Act, which is payable outside India, on which tax
        has not been paid or deducted under Chapter XVII-B;

        Provided that where in respect of any such sum, tax has been
        deducted under Chapter XVII-B or paid in any subsequent
        year, such sum shall be allowed as a deduction in computing
        the income of the previous year in which such tax has been
        paid.

        *****

        (iii) Any payment which is chargeable under the head
        "Salaries" if it is payable outside India and if the tax has not
        been paid thereon nor deducted therefrom under Chapter
        XVII B."


11.     Section 40 of the Act begins with the non obstante clause and,

thus, expressly disentitles an assessee to claim deductions which may

otherwise be allowable under Sections 30 to 38 of the Act. Thus, even

though an amount is deductable in computing the income chargeable

under the head "profits and gains of business or profession" , the same

would not be deductable if it falls foul of any of the clauses of Section 40

of the Act. A plain reading of Section 40(a)(iii) of the Act as was in force

during the relevant year indicates that no deduction would be allowable in

respect of any payments chargeable under the head "Salaries" if (a) the

same are payable outside India and (b) if tax has not been paid or

deducted thereon under Chapter XVII B of the Act. The said clause (iii)

was substituted by virtue of the Finance Act, 2003 with effect from 1st



ITA 32/2004                                                          Page 12 of 22
April 2004. By virtue of the aforesaid amendment, the rigor of sub clause

(iii) of clause (a) of Section 40 of the Act now also extends to any amount

payable as salaries in India. Plainly, the principal object of the aforesaid

sub clause (iii) is to provide a further disincentive for non-compliance of

provisions of Section 192 of the Act.


12.     The provisions of Section 192 fall within Chapter XVII B of the

Act which relates to collection and recovery of tax. Provisions for

deduction of tax at source are a part of the machinery provided for

collection of taxes payable by a payee (recipient of income) by directly

imposing upon the payer an obligation to withhold the tax due and

deposit the same with the Government. Such tax is deposited to the credit

of the payee and not the payer. In case of salaries, any person responsible

for paying the income chargeable under the head "Salaries" - who would

inevitably be the employer - is obliged to deduct the tax chargeable on the

income of the employee (payee) under the head "Salaries". Thus, in the

present case, the tax deposited by the Assessee is clearly in discharge of

its obligation under Chapter XVII B of the Act.          In this view, the

contention advanced by Mr Chaudhari that the condition that the

Assessee has not deducted and deposited the tax under Chapter XVII B of

the Act, cannot be accepted. Indisputably, the Assessee has deposited the



ITA 32/2004                                                       Page 13 of 22
requisite amount which it was required to deposit in respect of amounts

chargeable under the head "Salaries" that was payable to and or for the

benefit of employees outside India. The said tax is deposited to the credit

of such employees. Thus, for all intents and purposes the same is

considered as a part of their Salaries which has not been paid to them but

has been deposited directly with the Government.


13.     It is also relevant to mention that Circular No. 685 dated 17/20th

June, 1994, in compliance of which the Assessee had deposited the

amount of tax, was issued under Chapter XVII B of the Act; the said

Circular granted amnesty from penalties and prosecution to the assessees

who complied with their obligation to deposit TDS in terms of Section

192 of the Act for the preceding years for which they had not done so, on

or before 31st July, 1994. The said circular clarified the position regarding

the applicability of provisions to withhold and deposit tax in respect of

payments made abroad and required the employers to immediately

comply with the provisions of Section 192 of the Act. Such compliance

was also incentivised by granting the amnesty as aforesaid. In the

circumstances, it can hardly be disputed that the tax deposited by the

Assessee was in discharge its obligations, albeit belatedly, as imposed

under Chapter XVII B of the Act. That being so, the Assessee had also



ITA 32/2004                                                        Page 14 of 22
overcome the rigor of sub-clause (iii) of clause (a) of Section 40 of the

Act as the necessary condition for applicability of the said provision, that

is, non-deduction and payment of TDS under Chapter XVII B of the Act,

no longer held good. Having complied with the said obligation, the

Assessee could not be denied the deduction which was otherwise

allowable under Section 37 of the Act.


14.     In our view, an absence of a provision similar to the proviso to sub-

clause (i) of clause (a) of Section 40 of the Act cannot be read as to

disentitle an Assessee to claim a deduction even though it has complied

with the condition under sub-clause (iii) of clause (a) of Section 40 of the

Act. A plain reading of proviso to sub-clause (i) of clause (a) of Section

40 of the Act indicates that where an Assessee has not deducted or paid

the tax at source in terms of Chapter XVII B in respect of any sum as

specified under sub-clause (i) of clause (a) of Section 40 of the Act, the

Assessee can, nonetheless, claim a deduction in the year in which the

assessee deposits the tax. This benefit is not available to an assessee in

respect of payments chargeable under the head "Salaries" which fall

within sub-clause (iii) of clause (a) of Section 40 and not sub-clause (i) of

clause (a) of Section 40 of the Act. Thus, an assessee would not be

entitled to claim deduction on account of salaries if it fails to deduct or



ITA 32/2004                                                        Page 15 of 22
pay the amount under Chapter XVII B of the Act. In cases where such

assessee deposits the amount in a subsequent year, the Assessee would

still not be able to claim the deduction in the year in which such tax is

deposited; his claim for deduction can be considered only in respect of

the year to which such expense relates. Therefore, in cases where the

assessments stand concluded, the Assessee would lose the benefit of

deduction for the expenses incurred on account of its failure to have

deposited the tax at source. Thus, concededly, in the present case the

Assessee has lost its right to claim a deduction for a period of six years -

AY 1985-86 to AY 1990-91- even though the Assessee has paid the TDS

on the expenses pertaining to said period.


15.     If a provision similar to the proviso to Section 40(a) (i) was

applicable to Section 40(a) (iii) then the Assessee would have been

entitled to claim the entire expenses on account of salaries paid overseas

pertaining to financial years 1984-85 to 1993-94 in the financial year

1994-95 relevant to AY 1995-96 as the payment for the tax for the

aforesaid years was paid on 20th July, 1994. However, absence of a

provision similar to that under sub-clause (i) of clause (a) of Section 40

does not mean that the Assessee would also be disentitled to claim

deduction on account of salaries in the year to which such expenses



ITA 32/2004                                                       Page 16 of 22
pertained even though the Assessee has subsequently discharged its

obligation to deposit the tax and has thus overcome the rigor of sub-

clause (iii) of clause (a) of Section 40 of the Act.


16.     The Tribunal has proceeded on the basis that if the tax due on

salaries paid overseas is not deposited strictly within the time prescribed

under Chapter XVII B of the Act, Section 40(a) (iii) would be applicable.

In our view, this added condition that the tax must be deducted and paid

within time, cannot be read in Section 40(a) (iii) of the Act. The plain

language of the Section 40(a) (iii) does not permit such interpretation. If

the parliament so desired, it would have specifically enacted so. This

becomes apparent when one reads the legislative amendments made to

Section 40 of the Act.


17.     Sub-clause (i) and sub-clause (iii) of clause (a) of Section 40 were

substituted by Finance Act, 2003 w.e.f. 1st April, 2004. The said sub-

clauses as substituted read as under:-


              "(i) any interest (not being interest on a loan issued
              for public subscription before the 1st day of April,
              1938), royalty, fees for technical services or other
              sum chargeable under this Act which is payable,--
              (A) Outside India: or
              (B) In India to a non-resident, not being a company
              or to a foreign company, on which tax has not been


ITA 32/2004                                                            Page 17 of 22
               deducted or, after deduction, has not been paid
               before the expiry of the time prescribed under sub-
               section (1) of section 200 and in accordance with
               other provisions of Chapter XVII-B:
               Provided that where in respect of any such sum, tax
               has been deducted under Chapter XVII-B or paid in
               any subsequent year, such sum shall be allowed as a
               deduction in computing the income of the previous
               year in which such tax has been paid.
               Explanation.---For the purposes of this sub-clause,--
               -
              (A) "royalty" shall have the same meaning as in
                  Explanation
                  2 to clause (vi) of sub-section (1) of section 9;
              (B) "fees for technical services" shall have the
                  same meaning as in Explanation 2 to clause
                  (vii) of sub-section (1) of section 9;"
                     xxxx              xxxx               xxxx
              "(iii) any payment which is chargeable under the
                   head "Salaries", if it is payable--
              (A) Outside India; or
              (B) To a non-resident,
                  and if the tax has not been paid thereon nor
                  deducted therefrom under Chapter XVII-B;"
                                                   (underlining for emphasis)




18.     It is at once seen that where the legislature wanted to make

payment of tax within a specified time a necessary pre-condition, it had

expressly indicated so. The Parliament has expressly enacted that

deduction in respect of payments made under sub-clause (i) of clause (a)

of Section 40 of the Act would not be available where such payments


ITA 32/2004                                                            Page 18 of 22
were made in India to a non-resident in respect of which tax had not been

paid "before the expiry of time prescribed under sub Section (i) of

Section 200". However, no such condition for depositing the tax paid

within a prescribed time was introduced in sub clause (iii) of clause (a) of

Section 40 of the Act.


19.     It is also relevant to note that sub-clause (i) of clause (a) of Section

40 was further substituted by sub-clauses (i), (ia) and (ib) by virtue of

Finance Act (No.2) w.e.f. 1st April, 2005. However, the pre-condition for

depositing the tax within the time prescribed under Section (i) of Section

200 was retained in sub-clause (i) and (ia). Thereafter, by virtue of

Finance Act (No.2), 2014, sub clause (i) was further amended and the

principal condition of depositing tax in respect of payments made in India

was amended and instead of the pre-condition of depositing the tax within

the time prescribed under Section 200 (i) of the Act, it was now stipulated

that the tax be deposited "on or before the due date specified in sub

section (i) of Section 139".


20.     With effect from 1st April, 2015, sub-clause (i) of clause (a) of

Section 40 reads as under:


              "40. Notwithstanding anything to the contrary in
              sections 30 to [38], the following amounts shall not be


ITA 32/2004                                                           Page 19 of 22
              deducted in computing the income chargeable under the
              head "Profits and gains of business or profession",---

              (a) in the case of assessee--

              [(i) any interest (not being interest on a loan issued for
              public subscription before the 1st day of April, 1938),
              royalty, fees for technical services or other sum
              chargeable under this Act, which is payable,---

              (A) outside India; or

              (B) in India to a non-resident, not being a company or to
              a foreign company, on which tax is deductible at source
              under Chapter XVII-B and such tax has not been
              deducted or, after deduction, has not been paid [on or
              before the due date specified in sub-section (1) of
              section 139]:

              [Provided that where in respect of any such sum, tax
              has been deducted in any subsequent year, or has been
              deducted during the previous year but paid after the due
              date specified in sub-section (1) of section 139, such
              sum shall be allowed as a deduction in computing the
              income of the previous year in which such tax has been
              paid.]
              Explanation.--For the purposes of this sub-clause,--

              (A)"royalty" shall have the same meaning as in
              Explanation 2 to clause (vi) of sub-section (1) of section
              9;

              (B)"fees for technical services "shall have the same
              meaning as in Explanation 2 to clause (vii) of sub-
              section (1) of section 9;"

It is apparent from the above that the condition to deposit TDS within the

prescribed time cannot be read into sub-clause (iii) of clause (a) of




ITA 32/2004                                                            Page 20 of 22
Section 40 of the Act as-unlike the language of item (B) of sub-clause (i)

of clause (a) of Section 40-the same has not been specifically enacted.


21.     We are also unable to agree with Mr. Chaudharis contention that

no deduction can be claimed by the Assessee as the salaries were not

reflected in the profit and loss account. The controversy whether an

Assessee can claim deduction on an expense which is not reflected in its

profit and loss account for the relevant period has been authoritatively

settled by the Supreme Court in its decision in The Kedarnath Jute Mfg.

Co. Ltd. v. The Commissioner of Income Tax, (Central), Calcutta:

[1971] 82 ITR 363 (SC) wherein the Court held as under:-


         "We are wholly unable to appreciate the suggestion that if an
         assessee under some misapprehension or mistake fails to
         make an entry in the books of account and although under the
         law, a deduction must be allowed by the Income Tax Officer,
         the assessee will lose the right of claiming or will be debarred
         from being allowed that deduction. Whether the assessee is
         entitled to a particular deduction or not will depend on the
         provision of law relating thereto and not on the view which
         the assessee might take of his rights nor can the existence or
         absence of entries in the books of account be decisive or
         conclusive in the matter."


22.     In view of the above, the question of law is answered in the

negative, that is, in favour of the Assessee and against the Revenue.




ITA 32/2004                                                         Page 21 of 22
23.     The appeal is allowed. In the circumstances, the parties are left to

bear their own costs.




                                                     VIBHU BAKHRU, J



                                                     S.MURALIDHAR, J
MARCH 1, 2016
RK/pkv




ITA 32/2004                                                        Page 22 of 22

 
 
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