TaxTMI 
TaxTMI 
2013 (9) TMI 17
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....s deductible from the petitioner's income as a deduction, by virtue of Section 36(1)(iii), on account of interest accrued in respect of capital converted into loan for the period 1st April, 1986 to 30th June, 1986?" 2. The facts are not in dispute. The appellant had built a fertilizer plant at Hazira, West Bengal. Government of India held equity share capital in the appellant society. By their letter dated 20th April, 1988, the Government of India converted a part of their equity share capital amounting to Rs.16 crores into a loan with retrospective effect; Rs.6 crores from 26th December, 1983 and Rs.10 crores from 20th January, 1984. As a result of the said conversion, the appellant became liable to pay interest on the said amount, which was payable with effect from 26th December, 1983 on loan of Rs.6 crores and 20th January, 1984 for loan of Rs.10 crores. Interest payable on the said loan was capitalised upto 28th February, 1986, i.e., the date on which the commercial production started in the fertilizer plant at Hazira. 3. In respect of Assessment Year 1987-88, the appellant had filed return of income on 20th June, 1987 and for the Assessment Year 1988-89 the return of inc....
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....ifference between contractual liabilities and statutory liabilities. Statutory liabilities are incurred under the statute and become payable in terms of the charging Section of the applicable statute. Contractual liabilities, on the other hand, become due and payable as per the terms of the contract and when quantification is settled by an agreement or otherwise. In the present case, the transaction in question was contractual in nature and not statutory, though Government of India was a party to the said transactions with the appellant-assessee as it had invested substantial amounts, including Rs.16 crores, which was subsequently vide letters dated 4th April, 1988 and 24th April, 1988 converted into a loan. These two letters state that in view of the official cost estimates, the Government of India had decided, in partial modification of their earlier letter dated 25th March, 1986, to convert an amount of Rs.16 crores already drawn by the appellant as equity into loan with retrospective effect. Interest on the said amount, which was now converted into loan, should be disbursed and paid to the Government of India. Letter dated 20th April, 1988 further clarified and stated that conv....
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....rcial principles. However, when there is a statutory interdict or stipulation, regardless of the ordinary commercial principles, the statute has to be followed. Section 36(1)(iii) of the Act does not help the appellant -assessee in form of any statutory interdict. There is no statutory provision that this amount should be allowed as interest accrued pursuant to the two letters dated 4th April, 1988 and 20th April, 1988. No such contention has been raised or even argued. We do not think that under the ordinary principles of accountancy the two amounts were liabilities. It was only after letters dated 4th April, 1988 and 20th April, 1988, interest became payable and accrued liabilities were incurred. Interest became due and payable for the first time. Period for which interest became payable, is different and should not be confused with time/date when liability accrued. As per the ordinary principles of commercial accountancy, the said liabilities cannot be allowed as an expenditure in the earlier years. 12. In Commissioner of Income Tax, Madhya Pradesh etc. versus Swadeshi Cotton and Flour Mills Private Limited, 1964 (53) ITR 134 bonus was paid in the year 1949, after an award un....
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....ed to bonus after the concerned accounting year for the assessee had ended on September 19, 1960. The Supreme Court observed that the accounting year concerned therein was one prior to the coming into force of the Bonus Act. Therefore, there was no existing liability upon the assessee to pay bonus during the said accounting year. In other words, during the relevant accounting year, the liability to pay bonus had not fastened on to the assessee. The liability itself was created subsequent to the closing of the accounting year. In the said situation, merely because the assessee has made a provision would not entitle a deduction under section 10(2)(x) read with section 10(5) of the Indian Income-tax Act, 1922. 15. In Commissioner of Income-tax versus Shri Goverdhan Ltd. (1968) 069 ITR 0675, the court observed that it is well established that the income may accrue to an assessee without actual receipt of the same and if the assessee acquires a right to receive income, the income can be said to have accrued to him though it may be received later on, on it being ascertained. The legal position is that a debt is a liability payable in praesenti or in future but it should have arisen an....
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....d was not regarded and treated as a loan. The two previous years had come to an end on 30th June, 1986 and 30th June, 1987, long before the letter dated 4th April, 1988 was issued. 18. We will be failing, if we do not mention reference made by the appellant to a decision of this Court in Additional Commissioner of Income Tax, Delhi-II versus Rattan Chand Kapoor, 1984 (149) ITR 1, which relies upon Kedarnath Jute Manufacturing Company Limited (supra). The said case again relates to a statutory liability, i.e., sales tax liability. The assessee had received demand notices for earlier years in the period relevant to the Assessment Year 1964-65. Revenue insisted and submitted that the assessee was following mercantile system of accounting and, therefore, the sales tax liability relating to earlier period cannot be allowed in the Assessment Year 1964-65. The contention was rejected observing that the decision in Kedarnath Jute Manufacturing Company Limited (supra) was distinguishable and was not an authority for the proposition that the assessee could not have claimed deduction or expenditure in the year in question. It was in the context of the factual matrix of the said case that i....