TaxTMI 
TaxTMI 
2005 (9) TMI 49
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. During the course of the assessment proceedings for the assessment year 1982-83, it was noticed that the assessee had debited a sum of Rs. 2,76,419 in the profit and loss account under the head "Car price difference paid to M/s. Premier Automobiles Ltd." and accordingly claimed it as deduction during the year under consideration from its total income. The amount of Rs. 2,76,419 represented difference in the selling price of the car by M/s. Premier Automobiles Ltd. as fixed by the notification of the Government in September 1969, and the price refixed on the judgment of the hon'ble Supreme Court of India in November 1971. Consequent upon the increase in prices by the Government, the principals had asked the assessee to make further payment on the purchases made earlier. The prices fixed by the Government vide their Notification dated September 21, 1969, were found to be unremunerative and, therefore, M/s. Premier Automobiles Ltd. challenged the notification issued by the Government of India before the hon'ble Supreme Court by filing a writ petition. The judgment of the hon'ble Supreme Court was delivered on November 24, 1971, and consequently the price was enhanced on the basis o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 when the claim of Rs. 3,39,571 was made vide demand notice dated November 30, 1971, just after the judgment of the hon'ble Supreme Court which was delivered. Being aggrieved by the aforesaid decision of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who confirmed the said addition after considering the entire correspondence and the judgment of the hon'ble Supreme Court. Being dissatisfied with the aforesaid decision of the Commissioner of Income-tax (Appeals), the assessee took up the matter before the Tribunal, which allowed the appeal filed by the assessee holding that the liability in question was undoubtedly relatable to the period September 1969 to April 1971 but this was not a statutory liability which was created by the statute against the assessee. The Tribunal also observed that the dispute in question got its final shape not in 1971 or 1972 but on September 20, 1981, when both the sides finally mutually agreed upon it. Therefore, it held that the liability to pay accrued and arose on the date of this final settlement, i.e., in the accounting period under consideration relevant to the assessment year 1982-83. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was not accepted by M/s. Premier Automobiles Ltd. and further letter dated February 18, 1982, was written. Thereafter, the quota of the car has been reduced by M/s. Premier Automobiles Ltd. Thus, the assessee felt constrained to settle the issue and, accordingly, wrote a letter dated August 13,1981, and in pursuance thereof a final settlement has been arrived between the assessee and M/s. Premier Automobiles Ltd. vide agreement/letter dated September 20, 1981, on an amount of Rs. 3 lakhs payable in monthly instalments of Rs. 20,000 each. However, after the deduction of the amount already paid a sum of Rs. 2,76,490 has been paid during the year under consideration towards final settlement vide letter dated September 20,1981, therefore, the deduction has been rightly claimed having accrued during the year under consideration. We have perused the order of the Tribunal and given our anxious consideration to the submissions of learned counsel for the parties. The short question for consideration is when the liability accrues whether liability to payment accrued in the year 1971 when after the decision of the apex court the demand has been raised by M/s. Premier Automobiles Ltd. for R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e accounting year when the matter has been settled in arbitration. In the case of CIT v. Oriental Motor Car Co. P. Ltd. [1980] 124 ITR 74 (All) it has been held that in the previous year relevant to the assessment year 1972-73, the assessee was a dealer of cars, tractors, cycles, scooters and spare parts, etc., and had supplied 42 tractors to the public works department, which in turn, distributed these tractors to various districts. The assessee's principals required the assessee to pay infringement commission on the sale of these tractors to its various dealers in other districts and the dealers in other districts were entitled to commission on the sale of these tractors. A demand at the rate of Rs. 930 per tractor was made by the principal but the assessee did not agree to it. Subsequently, on May 11, 1972, the matter was settled and the assessee was asked to pay infringement commission to dealers in other districts at Rs. 650 per tractor. The assessee accepted the claim, paid the amount which worked out to Rs. 32,650. The assessee claimed deduction of the aforesaid amount in the assessment year 1972-73 in which the principal required the assessee to pay the infringement commis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scorts Ltd. was negotiable, for, ultimately, the matter was settled at Rs. 650 per tractor. In such circumstances, it cannot be said that an ascertainable liability arose to the extent of Rs. 950 per tractor as soon as M/s. Escorts Ltd. had made the claim. In our view, the liability for the amount arose when the assessee admitted the liability at the rate of Rs. 650 per tractor which is evidenced by the letter of May 19, 1972." In the case of Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33 (All), the assessee-company was carrying on the business of manufacturing yarn and cloth. In its assessment for the assessment year 1960-61, the assessee claimed a deduction of Rs. 18,533, being the sum paid to the Ahmedabad Textile Industry Research Association towards its annual contribution for the year ending March 31,1958. There had been some dispute between the assessee on the one hand and the Association on the other with regard to that bill and the payment was ultimately made in the previous year relevant to the assessment year, 1960-61. The Tribunal, agreeing with the Revenue, held that the payment related to the period April 1, 1957, to March 31, 1958, and could not be allowed i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he matter?' On the other hand, Kanpur Tannery Ltd. v. CIT [1958] 34 ITR 863 (All); CIT v. Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134 (SC) and CIT v. Banwari Lal Madan Mohan [1977] 110 ITR 868 (All) can be cited as some of the instances of a liability arising as a result of some contractual or similar obligations. In Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134 (SC), the assessee was required to pay profit bonus to its employees and for the calendar year 1947 it made the payment in terms of an award made on January 13, 1949, under the Industrial Disputes Act. It debited the amount in its profit and loss account for the year 1948 but in fact paid it to the employees in the calendar year 1949. That liability was treated as an allowable deduction only in 1949 when the claim to profit bonus was settled by the award of the Industrial Tribunal. The view taken was that an employer who follows the mercantile system of accounting incurs a liability towards profit bonus only when the claim, if made, is settled amicably or by industrial adjudication. In Kanpur Tannery Ltd. [1958] 34 ITR 863 (All), the liability was in respect of deficiency of premium payable to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the nature of a contractual liability. Before the Supreme Court M/s. Premier Automobiles Ltd. has challenged the Government notification fixing the price. The assessee was not a party before the Supreme Court. Vide interim order dated April 16, 1971, for the period from September, 1969 to the date of interim order dated April 16, 1971, the recommended prices were more than the notified prices and, accordingly, M/s. Premier Automobiles Ltd. wrote a letter on December 1,1971, bringing its attention to the following extract from the judgment of the Supreme Court as follows: "For the period September 1969, to the date of the interim order Premier Automobiles have agreed that the maximum price will be those which have been stipulated in the undertakings obtained by them from the dealers that these shall, in no case, exceed the price to be computed by the manufacturers in accordance with the Commission's report as modified by our decision for the period September 1969 by the Commission (this is same as fixed by our interim order) from July 1, 1970 till April 16, 1971 (the date of our interim order)." The aforesaid Premier Automobiles Ltd. contended that in terms of the Circular letter ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le to pay to you something, which was never recovered by us from the customers. However, in consultation with the other partners of the firm and haying regard to our continuing business relations I am prepared to have a reasonable settlement, which should be fair to both of us. I think it shall be best if this is done across the table. Due to my failing health, I cannot undertake a journey to Delhi or Bombay. I do not know whether you have any plan to visit Lucknow in the near future but I would be very happy if a meeting with you could be possible. Alternatively, if Mr. Bhaskar may have a meeting I am sure a way can be found out to clear this matter. I have spoken to him about this on telephone yesterday and I have requested him to get from you clarification on certain points before our meeting takes place. In particular I would expect that our liability is fixed at a fair amount and the payment is spread over a reasonable time. This will necessarily require a reasonable relation with the supply schedule of cars allotted to us and a realistic reappraisal of the future car supply schedule for our firm. I have also explained to him that there is no justification for our being requi....