I.S. Israni, J. - (1.) THIS is an income-tax reference application dated February 17, 1981, under Section 256(2) of the Act 1961 (hereinafter referred to as "the Act") arising out of the order of the Income-tax Appellate Tribunal, Jaipur, in Income-tax Appeal No. 1788 (JP) of 1980 and C.O. No. 52/ JP/80.
(2.) BRIEFLY stated, the facts of the case are that the non-petitioner company initially filed original return declaring an income of Rs. 31,49,270 on August 18, 1976. This was subsequently revised on February 24, 1978, and as per the revised return, the total income was shown at Rs. 3,45,842. In this revised return the assessee claimed Rs. 19,92,263 for contingency provisions and also revised the depreciation chart in relation to which another reference made under Section 256(1) is pending in this court. The assessee claimed to deduct Rs. 19,92,263 being contingency provision, which was disallowed in the earlier years 1974-75 and 1975-76. The Inspecting Assistant Commissioner (Assessment) after examining the claim of the assessee, allowed deduction to the extent of Rs. 5,97,867, vide its assessment order dated March 22, 1979, but disallowed the balance amount claimed of Rs. 13,94,396 on the ground that the liability in question does not pertain to the assessment year under review. The non-petitioner went in appeal against the above order and the Commissioner of Income-tax (Appeals), Rajasthan, Jaipur, vide his order dated October 16, 1979, observed that the excess sum of Rs. 41,84,285, which represented provision for contingency allowed in the trading account up to the assessment year 1975-76 was taxable in the assessment year 1975-76 (1976-77?). He further stated that since there is a double addition of Rs. 13,94,396 in the contract account, deduction of Rs. 13,94,396 has to be given from the excess contingency of Rs. 41,84,285 and thus only a sum of Rs. 27,89,889 was available to be brought to tax in the assessment year 1976-77. The non-petitioner preferred an appeal before the Income-tax Appellate Tribunal, Calcutta (Bench). "A", Camp at Jaipur, against the order of Commissioner of Income-tax (Appeals) and the Revenue also filed cross-objections. The Income-tax Appellate Tribunal, vide its order dated October 21, 1981, knocked off the enhancement made by the Commissioner of Income-tax (Appeals) and restored the matter to the Inspecting Assistant Commissioner for computation of income exactly in the same manner as has been done in the assessment years 1974-75 and 1975-76. The Income-tax Appellate Tribunal observed that the method of accounting adopted by the assessee in the assessment years 1974-75 and 1975-76 continued in the assessment year 1976-77 and since there has been no departure made by the assessee, there was no reason to make a total departure by holding that some of the provisions of the contingency made by the assessee did not qualify for deduction at all. The case of the Revenue was that the assessee company itself has been changing its mode of computation in the matter of allow-ability of contingency from year to year. The Revenue further contended that up to the assessment year 1976-77, the total provision for contingency allowed was Rs. 1,19,564 in both accounts (i.e., Rs. 41,84,285 in the trading account and Rs. 78,10,279 in the contract account) against the allowable sum of Rs. 78,10,279 only for in the trading account the supplies made by the assessee shown as sales tax and even sales tax is paid thereon (sic). There can, therefore, be absolutely no question of making any provision for contingency in regard to the sales in the trading account. The Revenue thus contends that the excess amount of Rs. 41,84,285 had to be brought to tax in the assessment year 1976-77. Out of this amount, an amount of Rs. 13,94,396 had to be deducted according to the Commissioner of Income-tax (Appeals). Thus the total excess income to be brought to tax was to be assessed at Rs. 27,89,889. It has been contended by learned counsel for the appellant that disregarding and ignoring the amount conceded by the assessee's representative during his argument, the Income-tax Appellate Tribunal restored the matter to the Inspecting Assistant Commissioner (Assessment) for computation exactly in the same manner as has been done in the assessment years 1974-75 and 1975-76. Against this order of Income-tax Appellate Tribunal, the Revenue made a reference application requiring the Income-tax Appellate Tribunal, to draw up a statement of case and refer the following question of law to this court for its opinion: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order of the Commissioner of Income-tax (Appeals) on the point of provisions for contingency and restoring the matter to the Inspecting Assistant Commissioner (Assessment) for computing the income exactly in the same manner as has been done in the assessment years 1974-75 and 1975-76. " The Income-tax Appellate Tribunal, however, rejected the reference application stating that since in their order in R.A. No. 167(JP) of 1981, they had held this to be a question of fact, for the same reasons, the question is held to be not a question of law arising out of the order of the Income-tax Appellate Tribunal. Shri R. N. Surolia, learned counsel for the petitioner, contended that the assessee-company itself has been changing its method of computing contingency allowable from year to year. There was, therefore, no foundation for the order of the Income-tax Appellate Tribunal to hold that the accounting method remained the same as during the previous years. He has further contended that the contingency amount in both the trading account as well as the contract account, the total amount exceeding the allowable amount of Rs. 41,84,285 had to be brought to tax. It has also been contended that the Income-tax Tribunal has failed to draw a distinction between a concluded sale and work-in-progress in the contract account and that with regard to the concluded sale which had been executed and on which sales tax had also been paid, the question of allowability of contingency does not arise.
(3.) LEARNED counsel, Shri N.M. Ranka, appearing on behalf of the non-petitioners has on the other hand asserted that the method of computing the contingency from year to year had not been changed by the assessee company and has supported the order of Income-tax Appellate Tribunal. We have heard the rival contentions of both the parties and have gone through the various orders involving the matter. Our attention has been drawn to the case of India Molasses Company (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC), wherein their Lordships of the Supreme Court have held that "spending in the sense of paying out or away" of money is the primary meaning of "expenditure". "Expenditure" is what is paid out or away and is something which is gone irretrievably. Expenditure, which is deductible for income-tax purposes, is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not expenditure. The income-tax law makes a distinction between an actual liability in praesenti and a liability de future which, for the time being, is only contingent. The former is deductible but not the latter. The matter of A.P.S. Cold Storage and fee Factory v. CIT [1979] 119 ITR 709 (All) was decided by the Allahabad High Court. The facts of the case were that the assessee firm debited Rs. 30,000 as loss in its profit and loss account on account of an award given by the arbitrator as damages against the assessee. The assessee, therefore, debited a sum of Rs. 30,000 in its profit and loss account. It was held that as the award given by the arbitrator had not been made a rule of the court and as no decree had been passed against the assessee in respect of the sum awarded, it was not enforceable against the same. Therefore, in the previous year, all that existed was a mere award against the assessee and it, at best, created a contingent liability, which would fructify only in the event of the same being made a rule of the court. As no decree was passed on the award by the court, no liability in praesenti was created against the assessee and the liability being merely contingent, no deduction in respect thereof could be made from the income of the assessee. Therefore, the Tribunal was right in not allowing the alleged loss of Rs. 30,000. We are, therefore, of the opinion that a question of law does arise out of the order of the Income-tax Appellate Tribunal which needs consideration by this court. ;