AMBICA MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference relates to the asst. yrs. 1955 56, 1956 1957 and 1957 1958 of which the relevant previous years are the calendar years 1954,1955 and 1956. Two questions arise in this reference. The first question is common to all the three assessment years are relates to certain unclaimed wages and the second question relates only to the asst. yrs. 1956 1957 and 1957 1958 and is as regards certain deductions claimed by the assessee company in regard to expenses incurred in connection with tours abroad by two of the directors of the assessee company who were also the partners in the managing agency firm and an employee of the assessee company.

(2.) THE assessee company is a public limited company and carries on business of manufacturing textiles. It maintains accounts according to the mercantile system. The expenses for wages to the employees engaged for carrying on the business of the company were shown in the accounts as liabilities as and when the accrued. In other words, irrespective of the payment of the wages, the assessee company used to take into account the wages due to employees and labourers and the entire sum so due was shown as a deduction in its accounts and also allowed as such in the income tax assessments made on the company. It sometimes happened that all the workers did not turn up to collect their dues and consequently, a portion of the wages in each year remained unpaid and such unpaid wages used to be transferred to an account called "unpaid wages account" . As and when the workers turned up to take their unclaimed wages, such amounts used to be paid to them and debited to the unpaid wages account. A separate account used to be maintained for each year in respect of such unclaimed wages. The unclaimed wages relating to the calendar years 1947 to 1949 were transferred to the general reserve fund and the amounts so transferred were brought to tax. The following were the unclaimed wages relating to the year 1950 and the subsequent years :

(3.) THE question therefore is whether the liability in respect of the unpaid wages payable during the calendar years 1950 to 1953 had become time barred during the assessment years and consequently extinguished, as assumed by all the three tax authorities. It is only if it was time barred that the next question would arise, viz., whether under S. 10(2A) these amounts treated as expenditure incurred could be said to have been received by the assessee company either in cash or in any other manner whatsoever. Mr. Kaji's contentions were that it was an admitted fact that the assessee company used to acknowledge publicly its liability in respect of these unpaid wages in the balance sheets at the end of each year, that is to say, 1950, 1951, 1952 and 1953, and that therefore, as a result of such acknowledgment, the debt of the assessee company in respect of these unclaimed and unpaid wages remain outstanding and the assessee company continued to be liable to pay those amounts. He also contended that even if these debts were said to be time barred, S. 10(2A) would not in any case apply in the instant case as it cannot be said that the assessee company had received either in cash or in any other manner whatsoever, the aforesaid expenditure or any part thereof. In our view, there is considerable justification in the first contention of Mr. Kaji and that being so, it would not be necessary for us to go into the second contention raised by him.