Commissioner of Income Tax vs Chembra Peak Estates Ltd.

K.S. Paripoornan, J.—At the request of the Revenue, the Income Tax Appellate Tribunal (in short, "the Tribunal") has referred the following question of law for the decision of this court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to deduction of the sum of Rs. 1,50,204 for the assessment year 1975-76 ?"

The respondent is an assessee to Income Tax.

We are concerned with the assessment year 1975-76. For the reasons stated in paragraphs 10 and 11 of its appellate order dated October 31, 1981, the Tribunal held that the respondent-assessee will be entitled to deduction of a sum of Rs. 1,50,204, representing the disallowed part of Rs. 7,05,057. It is common ground that the amount so allowed by the Tribunal does not really exceed 8-1/3% of the salary of each employee. It is also common ground that in allowing the amount of Rs. 1,50,204, the Appellate Tribunal has taken into account what is called an "incremental liability". A Bench of this court in CIT v. Periya Karamalai Tea and produce Co. Ltd. [1987] 167 ITR 32 has held that incremental liability is not a concept which is germane to Section 40A(7)(b)(ii) of the Income Tax Act. If that be so, the Tribunal was not justified in holding that the assessee is entitled to deduction of Rs. 1,50,204 for the assessment year 1975-76 though it did not exceed 8-1/3%.

In the light of the earlier Bench decision in Periya Karamalai Tea and Produce Co. Ltd.''s case [1987] 167 ITR 32, we answer the question referred to us in the negative, against the assessee and in favour of the Revenue.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.