TaxTMI 
TaxTMI 
TaxTMI 
2007 (10) TMI 146
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....g subjudice the contractual liability had not accrued and arisen during the previous year under consideration and therefore, the disallowance of Rs.79,220/- was rightly made by the Income Tax Officer?" 2.The Assessee was allotted a plot of land by the Delhi Development Authority ('DDA') for the construction of a cinema building. As required by the terms of the lease entered into between the Assessee and the DDA, the Assessee completed the construction in August, 1970. On 5th September, 1970 the DDA issued an occupancy certificate to the Assessee. 3.The Assessee raised some disputes with regard to the payment of ground rent contending that drainage, sewerage and water supply facilities had not been provided by the DDA. It was also contende....
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.... Films (Pvt.) Ltd. Moti Cinema Compound, Chandni Chowk, Delhi. Sub: Regarding payment of ground rent in respect of Milan Cinema plot at Karampura Shopping Centre. Dear Sirs, The payment of ground rent in respect of your above noted cinema plot for the period from 1.7.80 to 30.8.81, amounting to Rs.2,01,600/- (Rupees two lakh one thousand and six hundred only) has become due. It is also to inform you that an amount of Rs.1,87,134.70 pa (Rupees one lakh sixty seven thousand one hundred thirty four and paisa seventy only) is also payable by you on account of interest charges for belated payments of ground rent. You are, therefore, requested to please make payment of the total dues stated above which comes to Rs.3,68,734.....
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.... demand for interest for the first time. 9.The claim of the Assessee, which was rejected by the Tribunal, was that since the interest amount was demanded by the DDA for the first time by its letter dated 9th September, 1980, the Assessee was justified in debiting its profit and loss account for the said sum during that relevant previous year. It was contended before us that under the mercantile system of accounting, which the Assessee followed, the liability to pay interest can be said to have accrued when it was demanded, that is, when the DDA's letter dated 9th September, 1980 was issued. 10.The question that is required to be decided is whether the authorities below were right in disallowing the amount of Rs.79,220, on the ground that ....
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....s only a reminder for the payment of interest. 12.The amount payable towards interest stood quantified for the first time on 9th September, 1980 and was therefore an ascertained one. The question that arises is whether on account of the Assessee following a mercantile system of accounting it could be said that the liability, which in this case is contractual, accrued during the relevant previous year and consequently whether the AO ought to have allowed Rs.79,220 as claimed by the Assessee towards the interest payable to the DDA. 13.A similar question had arisen before us in R.C. Gupta, Delhi v.Commissioner of Income Tax, Delhi VIII [2008]297ITR 161(Delhi) ITR No. 153 of 1986 decided on 3rd September, 2007). In that decision, we had relie....
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....ctually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfillment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimate....
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....unt in terms of the award was debited to the profit and loss account for the year 1948 but in fact paid to the employees in the calendar year 1949. The Supreme Court held that the it was only in 1949 that the claim to profit bonus was settled by an award of the Industrial Tribunal. The Supreme Court took the view that since the Assessee followed the mercantile system of accounting in that case, the liability to pay profit bonus accrued only when the claim was settled amicably or by industrial adjudication. We are of the view that the decision of Swadesh Cotton and Flour Mills Private Limited [1964] 53 ITR 134(SC)would not applicable insofar as the present case is concerned. 17.In so far as the letter dated 9th September, 1980 is conc....