TaxTMI 
TaxTMI 
2001 (6) TMI 37
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....yalty Rs.1,17,20,456 was neither a statutory liability nor a liability in presenti but a contractual or de futuro liability?" The assessee is a limited company and engaged in the manufacture and sale of paper. The assessment year involved is 1980-81 for which the relevant year ended on March 31, 1980. The main raw materials used by the applicant/assessee for manufacture of paper are eucalyptus wood and pine wood. The said raw materials are obtained from the forests of the Government of Uttar Pradesh. The terms and conditions on which such raw materials are supplied by the Government of Uttar Pradesh are that the applicant would pay the royalty as would be determined by the Government. Initially, royalty on eucalyptus wood supplied by the Government of Uttar Pradesh was fixed at Rs.90 per volumetric ton (hereinafter referred as V. M. T.). In terms of the Government order, the said royalty was revisable every two years. During the relevant previous year the applicant/assessee received an intimation dated April 13, 1979, from the Government of Uttar Pradesh about the revision of royalty from the last fixed rate of Rs.90 per V. M. T. to Rs.216 and Rs.290 per V. M. T. On representati....
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....y. Therefore, deduction cannot be allowed. Learned counsel for the assessee, Shri Bajoria, submits that the royalty payable by the assessee is a statutory liability in view of the provision of section 82 of the Indian Forest Act, 1927. He further submits that royalty is a tax as per the latest decision of the Supreme Court in the case of India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690. When it is a statutory liability whether the assessee has challenged or disputed that liability in the High Court does not make any difference when the assessee is following the mercantile system of accounting. He supported the view taken by the Commissioner of Income-tax (Appeals). On the other hand, learned counsel for the Revenue, Shri Mallick, submits that the royalty payable by the assessee is a contractual liability and when it is disputed it cannot be allowed when the dispute is pending in the court. When the hearing was concluded the liberty was also given to the parties to file the written arguments if they so desire. Learned counsel for the assessee filed the written submissions. No written submissions are filed by learned counsel for the Revenue till date. Therefore, we h....
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....bsp; --------------- 4,42,59,611 --------------- Less : Royalty provided in accounts up to 31-3-1979 and allowed by the Assessing Officer: From 1-10-1976 to 31-3-1978 at Rs. 90 per V. M. T. 1,28,26,221 From 1-4-197....
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....; --------------- 1,17,20,456 ------------------------------------------------------------------------------------------------ Balance amount not provided for in the accounts but claimed in the assessment year 1980-81 by the appellant-Not allowed by Income-tax Officer but allowed by the Commissioner of Income-tax (Appeals). The assessee has disputed these h....
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....nder the income-tax. Now it brings us to the issue whether the royalty payable by the assessee in pursuance of the order dated April 30, 1979, is a statutory liability. To consider this issue first we would like to refer to some observations, decisions, relevant to the issue. In the case of CIT v. Gorelal Dubey [1998] 232 ITR 246 the issue before the Madhya Pradesh High Court was whether royalty is a tax. Following the decision of their Lordships in India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690 (SC), the Madhya Pradesh High Court has taken the view that royalty is a tax. The Madhya Pradesh High Court has observed at page 248 as under: "In paragraph 31 of the judgment, their Lordships, after referring to the views expressed by the Rajasthan, Punjab, Gujarat and Orissa High Courts that the royalty cannot be said to be a tax because this is something which is being paid in lieu of minerals extracted, in paragraph 34, concluded by saying that the royalty is a tax and thus the decisions of the High Courts cannot hold good." When the royalty is treated as a tax that cannot be a contractual liability. The view taken by the Madhya Pradesh High Court in Gorel....