Court allows deduction for accrued liability under COPE Scheme for assessment year 1975-76

The High Court held that the liability in respect of adventitious gain under the COPE Scheme, amounting to Rs. 24,28,172, was allowable as a deduction for the assessment year 1975-76. The Court determined that the liability was accrued and ascertained based on Government directives, making it a definite liability rather than contingent. Additionally, the Court directed the Income-tax Officer to revise the assessment for a subsequent year to include the liability amount for consistency in treatment.

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Issues:
1. Disallowance of liability in respect of adventitious gain under the COPE Scheme.
2. Nature of liability in respect of adventitious gain under the COPE Scheme.

Analysis:
1. The case involved a non-resident company deriving income from the distribution and marketing of petroleum products in India. The issue was whether the liability in respect of adventitious gain of Rs. 24,28,172 under the COPE Scheme was allowable. The Government required oil companies to surrender adventitious gains arising from stock on November 2, 1973, due to an increase in crude oil prices. The Tribunal held it was a contingent liability and disallowed it. However, the High Court found the liability was accrued and ascertained based on Government directives. The liability was not contingent but definite, making it an allowable deduction for the assessment year 1975-76.

2. The second issue revolved around the nature of the liability under the COPE Scheme. The Revenue argued that the liability was not ascertained as there was no demand for payment during the assessment year. They contended that the COPE Scheme did not cover purchases made before October 16, 1973. However, the assessee maintained that the liability was clear based on Government directives, which required the surrender of adventitious gains even on stock purchased before the scheme's introduction. The High Court agreed with the assessee, emphasizing that the liability was accrued and ascertained as per the Government directive, making it a deductible amount for the assessment year 1975-76.

3. The High Court highlighted discrepancies in the assessee's treatment of the liability over different assessment years. While the Income-tax Officer excluded the liability amount in the assessment for 1975-76, the assessee offered it for taxation in the assessment for 1978-79. The court directed the Income-tax Officer to revise the assessment for 1978-79 to include the liability amount, emphasizing consistency in treatment. Despite the initial exclusion, the liability was deemed allowable for the relevant assessment year based on being an accrued and ascertained liability as per Government directives.

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