TaxTMI 
TaxTMI 
2001 (10) TMI 23
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.... the use of their office, telephone, staff and other facilities was a deductible item of expenditure?" The assessment year is 1981-82 and the relevant accounting period is calendar year 1980. The assessee, which is a registered firm, occupied office premises situated at Manekchowk, Ahmedabad, of one Chunilal Pranjivandas and Co. of Bombay and also utilised telephone and staff of the said firm. The assessee had similarly occupied these premises and utilised the facilities since calendar year 1977. It appears that there is no written agreement between the parties. However, the assessee debited in its books a sum of Rs.1,00,000 towards user of the premises, telephone and staff for the year under consideration on the basis of mercantile syst....
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....inguished its own order for the immediately preceding assessment year 1980-81, wherein the Tribunal itself had allowed such liability pertaining to calendar years 1977, 1978 and 1979. We have heard Mr. J.P. Shah, learned counsel appearing on behalf of the applicant-assessee, and Mr. Akil Kureshi, learned standing counsel appearing on behalf of the respondent-Revenue. Mr. Shah submitted that the Tribunal and the authorities erred in holding that there was no ascertained liability, because there was no dispute to the fact that the assessee-firm had in fact utilised the premises of the Bombay firm as well as the facilities of telephone and the staff. It was submitted that once this was the position, on the basis of the system of accounti....
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....he Bombay firm and the assessee should not now be permitted to conveniently change its stand when undisputedly there was no claim made by the Bombay firm, no debit note had been issued by the Bombay firm nor was any quantification available during the year under consideration. He further submitted that mere user by itself was not sufficient for accrual of the liability and as found by the Tribunal, the letter dated March 10, 1981, did not raise any demand nor did it quantify any liability on the basis of which the Bombay firm would claim the rent for the user of the premises and the facilities. Mr. Kureshi extensively read from the Tribunal's order for the assessment year 1980-81 to show that for the immediately preceding year the assessee ....
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....e as a deductible item of expenditure. As to when a business liability arises is an issue which is no longer res integra. The Supreme Court in the case of Bharat Earth Movers [2000] 245 ITR 428, has laid down the law in the following terms: "The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it ....
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....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 estimated." Applying the aforesaid test, it is apparent on the facts of the present case that the assessee as a trader while computing its taxable profits for the year under consideration was properly required to deduct not only the payments actually made for use of premises and facilities but also the present value of any payments in respect of such use in that year though payable in a subsequent year in case such liability could be satisfactorily estimated. As already seen, the assessee has given detailed working of the estimated liability for the year under consideration and there is no dispute as regards....