The Hindu Business Line : How latest is latest?

THE interesting issue of how current judgments are, came up before the Calcutta High Court in the C.E.S.C Ltd & Another vs DCIT & Others (2004 270 ITR 383).

Facts, issues

The assessee had claimed deduction of amounts transferred to the contingency reserve fund in the assessment years 1990-91, 1992-93, 1993-94 and 1994-95. These deductions were claimed as allowable expenditure in accordance with Section 37 of the Act. Up to the assessment year 1994-95, the returns were accepted; deduction in respect of the appropriation of contingency reserve fund was allowed and intimation under Section 143(1)(a) of the I-T Act, 1961, was issued.

Subsequently, notice under Section 143(2) was issued. Regular assessment under Section 143(3) was complete disallowing the appropriation to contingency reserve for the assessment years for the AYs 1990-91 and 1992-93. Regular assessment in respect of the AYs 1993-94 and 1994-95 pursuant to the notice under Section 143(2) was pending. In respect of each of these four assessment years, notices under Section 154 of the Act were also issued. For the AY 1995-96, an assessment was made under Section 143(1)(a) and the appropriation to contingency reserve was disallowed.

On a writ petition, the single judge granted relief to the assessee in respect of the assessment years 1990-91, 1992-93, 1993-94 and 1994-95 by quashing the respective notices under Section 154. No relief was allowed in respect of the AY 1995-96. The matter was taken up on appeal.

Court decision

The Calcutta High Court held that when the assessee filed his return for AY 1995-96 on November 30, 1995, the claim for contingency reserve as an allowable deduction was decided by the Supreme Court on November 28, 1995, against the appellant in the Associated Power Co. Ltd vs CIT (1996 218 ITR 195) case.

Therefore, the contents of the apex court decision was available to the assessee when he filed his return of income on November 30, 1995. Hence, the assessee's stand stating that the matter was still not free from doubt cannot be accepted as a tenable argument to warrant the contingency reserve claim as a deduction in the return of income.

The court reasoned "that the law declared becomes enforceable on the date it is declared by the court. It is not dependent on the knowledge or the information of a particular assessee. Further, article 141 of the Constitution provides that the law declared by the Supreme Court is binding on all courts. The declaration of the law is complete as soon as the judgement is pronounced."

The court accordingly held that the claim for the contingency reserve fund cannot be treated as a deduction based on the decision of the apex court .

No doubt, Supreme Court decisions, particularly in tax cases, are tracked on a continuous basis. In today's world of rapid technological change, decisions are available virtually online.

Applying the rationale of a judgment in making a claim is at times risky considering that principles can be laid down with reference to the facts of a particular case.

As far as the appellant is concerned, the Calcutta High Court took the stand that the law on the subject was declared by the apex court on the date the judgment was rendered and that sealed the issue.

This casts an onerous responsibility on assessees making claims for deduction to ensure that latest decisions of the court are considered when their returns of income are filed.

(The author is a Chennai-based chartered accountant.)

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