High Court Of Delhi
CIT vs. Modern Spinners Ltd.
Sections 36(1)(iii), 37(1), 260A
Asst. Year 1995-96
Swatanter Kumar & Madan B. Lokur, JJ.
IT Appeal No. 438 of 2004
3rd March, 2005
Counsel Appeared
Ms. P.L. Bansal, for the Petitioner : None, for the Respondent
JUDGMENT
SWATANTER KUMAR, J. :
The short question that arises for consideration in the present appeal is to the interpretation and meaning of the expression ‘ascertained liability’ in the facts and circumstances of the present case.
2. The assessee filed a return for the asst. yr. 1995-96 on 24th Nov., 1995 declaring a loss of Rs. 57,99,781. The return was processed under s. 143(1)(a) of the IT Act (hereinafter referred to as the Act) without making any adjustment. The AO issued a notice to the assessee under s. 143(2) and 142(1) along with a questionnaire on 26th Sept., 1996 and the case was taken up for scrutiny. While dealing with some other matters in the order of the assessment, the AO specifically required the assessee to show cause why provisions of interest of Rs. 49.23 lakhs should not be disallowed as the provisions amounted to unascertained liability. After granting opportunity to the assessee, the deduction for the said amount of interest was disallowed by the AO vide his order dt. 20th Nov., 1996. Against this order, the assessee preferred an appeal which was also dismissed by the CIT(A), New Delhi, vide his order dt. 18th Aug., 1998. The view taken by the AO as well as the CIT(A), was set aside by the Tribunal upon appeal by the assessee and vide its order dt. 12th Jan., 2004, the Tribunal held as under :
“We have carefully considered the entire material on record. In view of the cls. (a) to (i) of the agreement dt. 31st Oct., 1992, the outstanding amount was to be paid with interest in phased manner. Since the assessee had not complied with the terms of the agreement the concession granted by the bank to the assessee was to be withdrawn. In view of the same, the rate of interest on the amount of Rs. 339 lakhs was Rs. 18.5 per cent. The assessee had made provision of interest as per the agreement and not as per the original terms and conditions of the loan. Even if the amount of loan was not paid by the assessee as per the agreement, the liability cannot cease to exist. The assessee had provided interest liability only at the rate of 10 per cent which was as per agreement and not as per the original terms and conditions of loan. Therefore, it cannot be treated to be a contingent liability, rather it is an ascertained liability. The assessee cannot be penalised for claiming less interest liability. In view of the above, the arguments of the learned counsel are allowed.”
It is not in dispute before us that the assessee had taken a loan from the Punjab National Bank and was in default of payment of its dues. The compromise was entered into between the bank and the assessee and it was on 31st Oct., 1992 at the time of the compromise agreement, the total outstanding was Rs. 1,165.23 lakhs including a recorded interest of Rs. 915.55 lakhs. This total liability was reduced to Rs. 499 lakhs payable in a phased manner with interest @ 10 per cent per annum on reducing balance. It was also pointed out that the assessee had made payments in terms of this agreement in the earlier financial years and by making a provision for interest @ 10 per cent as a default of compromise. As noticed in the order of the CIT under cl. (ii) of the agreement, in case of delay by a period of one year in payment of respective instalments, interest @ 18.5 per cent shall be charged and if there is a further delay the borrower-assessee will not be entitled to the benefits of concessions envisaged in the compromise terms and will be liable to pay the outstanding with further interest at the agreed rate in terms of cl. (i) of the agreement. While relying upon the judgment of the Madras High Court in the case of CIT vs. Anamallais Bus Transports (P) Ltd. (1975) 99 ITR 445 (Mad), the learned counsel appearing for the appellant-Department contended that it was under an ascertained liability so as to entitle the assessee for allowance. In the expression ‘ascertained liability’ the emphasis is on the word ‘ascertained’. The word ‘liability’ is hardly of any consequence as liability to pay is an admitted fact. Only question before the Court is whether the amount reflected by the assessee was, or was not, an ascertained amount. The word ‘ascertain’ has been defined in the Black’s Law Dictionary, 6th Edn. ‘to estimate and determine; to clear of doubt or obscurity. To ensure as a certainty’. Though this word is capable of two meanings—one a strict and another a popular meaning, in the first it may mean ‘to make certain’ while in the latter ‘to get to know’. Once a matter was ascertained it would be ascertained. Subject of liability in the present case, an admitted document was the compromise deed under which the assessee had shown his liability for the previous years and which was accepted as a result of default or delay. The liability under the terms and conditions of compromise cannot be wiped out.
It was not a unilateral act on the part of the assessee but was a bilateral consented action on behalf of the parties which was of binding nature in the terms of agreement. As such it cannot be termed as an unascertained liability. The reliance by the learned counsel appearing for the appellant on the case of Anamallais Bus Transports (supra) is misplaced inasmuch as, even there it was held that making a provision for bonus would be a contingent liability. It was further clarified that if the worker had raised a claim and the assessee had admitted the liability to the extent of provision made, then, it would be a matter entitled to the deduction. But a mere provision by the assessee, unilaterally for bonus, would not entitle him for the deduction. Even on the ratio of this judgment the assessee in the present petition would be entitled to deduction because demand of the bank has been admitted by him and a compromise deed is executed which has clauses which would remain in force irrespective of its duration. Thus, the reasoning given by the CIT(A) has been correctly rejected by the Tribunal. Furthermore, the reasoning given by the Tribunal cannot be faulted with, even on the plain reading of the relevant provisions. The interpretation given to the expression ‘ascertained liability’ is in consonance with the scheme of the Act. The present appeal thus raises no substantial question of law in terms of the principle laid down by different judgments including the Division Bench judgment of this Court in the case of CIT vs. S.R. Fragrances Ltd. (2004) 187 CTR (Del) 4 : (2004) 270 ITR 560 (Del). For the reasons aforestated we find no merit in this appeal, the same is dismissed.
[Citation : 284 ITR 308]
