1986 (8) TMI 109 - AT - Income Tax

Tribunal rules award not immediately enforceable, requires court judgment for deduction claim

INCOME TAX OFFICER. Versus ASIATIC WIRES LTD.

INCOME TAX OFFICER. Versus ASIATIC WIRES LTD. - TTJ 028, 211, Issues:- Challenge to the order of CIT(A) allowing deduction under an award- Interpretation of provisions of the Arbitration Act regarding enforceability of an award- Dispute over whether liability under the award is contingent or enforceable immediatelyDetailed Analysis:1. The Department challenged the order of the CIT(A) allowing the deduction under an award, contending that the liability under the award was contingent until a judgment was pronounced in accordance with the award and a decree was made. The Department relied on Section 17 of the Arbitration Act and previous case law to support its argument.2. The authorised representative for the assessee argued that the liability accrued when the award was made, relying on specific clauses of the contract and provisions of the Arbitration Act. The representative also cited relevant case law to support the position that the liability became enforceable upon the making of the award.3. The Tribunal examined the provisions of the Arbitration Act, relevant case law, and the arguments presented by both parties. It concluded that the award did not become enforceable immediately upon being made, as a judgment in accordance with the award and a decree were necessary for enforceability under Section 17 of the Act.4. The Tribunal highlighted the distinction between the previous Indian Arbitration Act and the current provisions, emphasizing that under the present Act, an award is not enforceable until a judgment is pronounced and a decree is made. It referenced case law to support the position that the award must be made a rule of the Court and a decree obtained for enforceability.5. The Tribunal differentiated the present case from previous decisions where the enforceability of the award was not the central issue. It emphasized that the liability under the award in this case was not enforceable without a judgment and decree, as per Section 17 of the Arbitration Act.6. The Tribunal referred to a Supreme Court judgment cited by the authorised representative for the assessee, clarifying that while an award has legal force, it must be made a decree of the Court for enforcement. The Tribunal concluded that the CIT(A) erred in finding the liability under the award to be immediately enforceable and upheld the decision of the ITO to reject the claim for deduction.7. Consequently, the Tribunal set aside the order of the CIT(A) and reinstated the decision of the ITO, rejecting the assessee's claim for deduction under the award. The appeal by the Department was allowed based on the interpretation of the provisions of the Arbitration Act regarding the enforceability of the award.