TaxTMI 
TaxTMI 
2013 (2) TMI 236
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....riefly stated the facts giving rise to the present Reference are as follows. The Reference relates to the Assessment Year 1979-80 of which the previous year ends on 31st March, 1979. The applicant is a wholly U.P. Government owned corporation established for the purposes of promoting Small Scale Industries in the State of U.P. The State Government sanctioned a loan of Rs.10,00,000/- on 6.7.1972 to enable it to aid small industries in the backward areas of U.P. The Government Order by which the loan was disbursed stipulated that the assessee would pay interest at the rate of 8% per annum on the amount of loan. However, the applicant did not agree to the payment of interest and it was its contention that this loan was for ....
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....ility did not relate to the business activities of this year and that it could not be said that it had accrued in this year. According to him, it was a clear-cut loan, interest was payable and, therefore, the assessee should have provided for the liability on accrual basis. He further held, what had been ascertained in this year was the rate of interest, which meant that the liability had only been quantified in the assessment year in question and not that the liability had arisen or had been created in this year. He, therefore, restricted the deduction only to the extent of interest relating to the Assessment Year 1978-79 which amounted to Rs.80,000/- and disallowed the remaining amount of Rs.3,67,960/-. Feeling aggrieved the assessee pref....
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....e part of the assessee. Next, there is no letter of the assessee to the Government to the effect that loan at this rate of interest was not acceptable. In fact, the finding of the Income Tax authorities that the loan amount was put to use by the assessee, has not been challenged before us. It is only by means of the resolution dated 9.8.1972 of the assessee's Board that while according approval of the Board for taking the loan in question, it was considered proper to request the State Government to exempt it from charging interest for the first two years and thereafter to keep the rate of interest at 4% only in view of the fact that the assessee was undertaking the joint venture in the larger interests of the industrial growth of the State ....
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....activities and that at the same time the assessee could not be expected to subsidies the Government in such programmes. The government was asked to reconsider. The Government vide its letter dated 11.5.78 informed the assessee that interest could not be waived. The decision of the Cabinet referred to in the earlier part of this order was also conveyed by the Government vide its D.O. Dated 17.9.78. Thus a chronological reading of the entire papers on the record shows that the loan had been granted to the assessee at the rate of 8% unequivocally and that it was a different matter that the assessee had been approaching the Government to waive the interest for the first two years and to reduce it to 4% thereafter. Since the rate of interest had....
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....tton and Flour Mills Private Ltd., (1964) 53 ITR 134. 2. New Victoria Mills Co.Ltd. vs. Commissioner of Income-tax, U.P., (1966) 61 ITR 395. 4. Learned Standing Counsel, however, submitted that from the very beginning the State Government has clearly stipulated in the Government Order that the loan would carry an interest of 8% per annum. Even though the assessee had disputed its liability but the stand taken by the State Government was consistent throughout, therefore, it was ascertained liability and cannot be said to be an unascertained liability and the authorities have rightly disallowed the claim for payment of interest for the other assessment years. He has relied upon the decision of the Hon'ble Supreme Court in....
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....y wages at least not for purposes of computing liability to income-tax and it is not an expense in the ordinary sense of the term, incurred for the purpose of earning profits. It is more like sharing the profits on the basis of a certain formula. Similar view has been taken by this Court in the case of New Victoria Mills. Co.Ltd.(supra). However, in the present case the interest on loan is to be deducted while computing any profit. It is an expense and the rate of interest from the very beginning was ascertained even though the assessee had disputed this it cannot be said that it was an unascertained liability. 7. In the case of Kedarnath Jute Mfg. Co.Ltd.(supra), the Hon'ble Supreme Court has held that whether the assessee is entitled to ....