COMMISSIONER OF INCOME TAX Vs. NATIONAL INSURANCE CO OF INDIA

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

(2.) The assessee was a foreign company carrying on insurance business in India. It was taken over by the Govt. of India with all its assets and liabilities with effect from January 1, 1973. The assessment year involved is 1972-73, the corresponding accounting period having ended on December 31, 1971. The total income was computed at Rs. 21,42,130 after disallowing Rs. 1,79,413 provided in the accounts by way of "pension provision". The assessee felt aggrieved and submitted an appeal before the AAC, regarding the disallowance of a sum of Rs. 1,31,279 in computing its total income for the relevant assessment year. The amount of Rs. 1,31,279 was the sum determined on actuarial valuation as a liability for pension to the employees under a scheme drawn up by the company for the purpose. The AAC observed that in the past, the company had been claiming the actual payment of pension to the ex-employees made during the respective years, but during the year under appeal, the assessee had carried out actuarial valuation of its liability to pay pension to its employees in future also and claimed such liability as a deduction during the year instead of actual payments. The AAC further observed that the allowance made by the ITO, for the year under appeal, of the actual payment instead of the deduction for the estimated liability on the basis of actuarial valuation as claimed by the assessee was consistent with the past practice and any departure therefrom would result in an anomalous position. The AAC also considered that the amount of Rs. 1,31,279 claimed was in the nature of provision notwithstanding that this amount had been quantified after an actuarial valuation and, therefore, the amount was not deductible in computing the assessee's profit for the year under consideration.

(3.) The assessee further preferred an appeal to the Tribunal and the Tribunal observed, inter alia, as follows :