TaxTMI 
TaxTMI 
2011 (8) TMI 267
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....eyer, Chain Conveyers, Idlers, Pulleys etc. This company was incorporated in the year 1943. However, sometime in the early nineties the assessee ran in the rough weather and its financial network eroded. Under these circumstances as per the Provisions of Sick Industrial Companies (Special Provisions) Act, 1985, it approached The Board for Industrial and Financial Reconstruction ('BIFR' for short) for reconstruction/rehabilitation. A reference was registered and Operating Agency (OA) was appointed to formulate a rehabilitation scheme. After the scheme was formulated, it was put up before BIFR on 01.05.1995. The scheme was valid till April 2004. 4. It so happened that during these hard days the assessee was awarded work for Coal handling of Punjab State Electricity Board (PSEB) plant at Ropar. This was in the year 1986. It appears that some dispute arose in respect of the said contract and because of certain lapses/delays on the part of the assessee, the PSEB referred those disputes to the Arbitrator. The Arbitrator gave his award on 20th June, 1995 awarding a total sum of Rs. 2,29,57,583/- in favour of the PSEB and against the assessee. This amount was also to carry interest....
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....red under Section 260A of the Act giving rise to the aforesaid substantial question of law. 7. Perusal of the impugned order of the Tribunal would reveal that the Tribunal has accepted the fact that once the award was made rule of the Court and decree was passed consequent thereto, the liability arose on 10.10.2002. It is also not in dispute that 10.10.2002 falls in the year in question. The Tribunal has also held that this aspect is rightly dealt with by the CIT(A) allowing the liability. In the opinion of the Tribunal the question, however, was as to whether such a liability was only a contingent liability in view of the declaration by BIFR that the assessee is a sick industrial company. On this aspect the Tribunal has come to the conclusion that it would indeed be a contingent liability in view of Section 22 of SICA which contains a non absentee clause and has overriding effect over the company law, any other law, memorandum and articles of association of the company or any other instrument having effect on the said Act or other law. Therefore, Section 22 overrides the provision contained in Section 37(1) of the Income Tax Act as well under which the liability is claimed....
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....system of accounting. It is also not in dispute and recognized by the Tribunal itself that once an award is passed and made rule of the Court, liability accrues. Therefore, under the normal circumstances it is but natural that liability had accrued against the assessee on 10.10.2002 when decree was passed in terms of the award. Only because the creditor is required to seek permission of the Board before proceeding to recover this amount would not make liability a contingent liability. 11. Answer is provided by a catena of judgments. First case on the point to which reference can be made is the judgment of this Court in Bhai Sunder Dass & Sons Co.(P) Ltd. v. Commissioner of Income-Tax, (2003) 259 ITR 33. It was a case where the assessee company had claimed deductions on the amounts in respect of commission payable by it to one Ms. Nellie Melson, a foreigner. It was also not in dispute that liability had accrued. However, before the payment could be remitted, permission of the RBI was necessary. On this ground the AO had held that for want of such permission, the occasion to make payment had not arisen and therefore the liability had not accrued. This view was upheld with the....
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.... our opinion, Therefore, since the liability of the assessed to pay commission to the lady accrued under agreement dated 5-5-1970 and the assessed was maintaining its account on mercantile system of accounting, it was entitled to deduct such liability which had accrued during the period for which profits and gains were being computed and, Therefore, the Tribunal was not right in law in restricting the deduction in respect of the commission to the amount actually remitted during the relevant year. Support to this view is lent by a decision of the Gujarat High Court in CIT v. Super Scientific Clock Co. [1999]238ITR731(Guj) , wherein rejecting the stand of the assessed that it was entitled to claim deduction on the basis of actual payment on receipt of the RBI's approval, it was held that under mercantile system of accounting liability accrues and is deductible in the year in which the same is payable and not in the year in which the assessed actually pays it and, further, the procedure for obtaining permission of the RBI to make payment does not postpone accrual of liability or make it contingent. 17. The decision of the Apex Court in Nonsuch Tea Estate Ltd.'s case (supra) does not ....