SUNEETA LABORATORIES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this court for its opinion :

(2.) THE material facts giving rise to this reference, briefly, are as follows:

(3.) IT is thus clear that the fact that the assessee had a cash credit account with the State Bank of India, that the goods were pledged with the bank to secure that account and that the bank had debited the account in question to the cash credit account of the assessee during the assessment year in question, were not in dispute before the Tribunal. The Tribunal observed that no material was produced before it to show as to how the said salary was allowable in the year of account. In our opinion, in view of the fact that the amount of salary to the godown-keeper and watchman was paid by the bank which sought to recover that amount from the assessee during the assessment year in question, by debiting it to the cash credit account of the assessee, the Tribunal was not justified in holding that claim for payment of salary should have been made in the year when the services were rendered by the godown-keeper and the watchman. The Tribunal erred in assuming that the godown-keeper and the watchman employed by the bank for preservation of goods pledged by the assessee with the bank were employees of the assessee. The Tribunal failed to appreciate that what was claimed by the assessee was not salary paid to its employees, but the amount recovered by the bank from the assessee during the assessment year on account of expenditure incurred by the bank for the preservation of goods pledged with the bank. The bank was entitled to recover that amount from the assessee and was also entitled to retain the goods pledged for expenses incurred by the bank in respect of the possession or for the preservation of the goods pledged, as provided by Section 173 of the Contract Act. In the circumstances of the case, therefore, the Tribunal, in our opinion, was not justified in upholding the disallowance of Rs. 55,679, being the amount of bank charges debited by the bank to the assessee's account during the relevant previous year. Our answer to question No. (4) referred to this court, is, therefore, in the negative and in favour of the assessee.