| Case ID |
2d30ef29-5339-412a-8c7d-f99ba26a9979 |
| Body |
View case body. Login to View |
| Case Number |
IT REFERENCE No. 18 OF 1959 |
| Decision Date |
Jun 20, 1962 |
| Hearing Date |
Jun 19, 1962 |
| Decision |
The Tribunal was not justified in disallowing the sums of Rs. 1,00,200 and Rs. 1,04,000 set apart for gratuity and bonus respectively in determining the actual accounting profits of the assessee for the purpose of section 23A of the Income-tax Act, 1922. The case highlighted the importance of considering imminent liabilities when assessing distributable profits. The court ruled in favor of the assessee, allowing these sums to be excluded from the calculation of distributable profits, recognizing the need for businesses to account for certain future expenditures realistically. |
| Summary |
In the prominent case of Greaves Cotton & Crompton Parkinson Ltd v. Commissioner of INCOME TAX, the Bombay High Court addressed the complexities of the Income Tax Act, specifically focusing on section 23A of the Income-tax Act, 1922. The pivotal issue revolved around the treatment of provisions made for gratuity and bonuses when determining the distributable profits of a company. The assessee, a private limited company, set aside substantial amounts for gratuity and bonuses in light of an industrial court award. The Income Tax Officer asserted that these provisions should be treated as reserves and thus not deducted from accounting profits. However, the court found that since the liabilities were imminent and based on prior awards, the sums could be rightfully excluded from distributable profits. This case emphasizes the significance of recognizing genuine business liabilities in tax assessments. Keywords such as 'Income Tax Act', 'distributable profits', 'gratuity', and 'bonus' are critical for understanding the implications of this ruling in tax law and corporate finance. The court's decision ultimately favored the assessee, reinforcing the principle that businesses should be cognizant of their actual financial obligations when declaring dividends. |
| Court |
Bombay High Court
|
| Entities Involved |
|
| Judges |
Y.S. Tambe,
V.S. Desai
|
| Lawyers |
N.A. Palkhivala,
P.N. Kaka,
G.N. Joshi,
R.J. Joshi
|
| Petitioners |
Greaves Cotton & Crompton Parkinson Ltd
|
| Respondents |
Commissioner of INCOME TAX
|
| Citations |
1963 SLD 198,
(1963) 48 ITR 20
|
| Other Citations |
CIT v. Bipinchandra Maganlal & Co. [1961] 41 ITR 200 (SC)
|
| Laws Involved |
Income Tax Act, 1922,
Income-tax Act, 1961
|
| Sections |
23A,
104
|