Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the interest payment to the Sugarcane Society and interest payable on the cane commission is an admissible deduction under s. 37(1) of the IT Act, 1961 ?

Counsel Appeared

D. N. Awasthi with B. K. Jhingan, for the Revenue : None appeared, for the Assessee

S. P. GOYAL, J.:

The Tribunal, Amritsar Bench, has referred the following two questions to this Court under s. 256 (1) of the IT Act, 1961, at the instance of the Revenue :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the interest payment to the Sugarcane Society and interest payable on the cane commission is an admissible deduction under s. 37(1) of the IT Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the sum of Rs. 26,862 is an admissible deduction in the assessment for the year 1969-70 ?”

2. The learned counsel for the Revenue has fairly conceded that the point of law, subject-matter of question No. 1, has to be answered against it in view of the Supreme Court decision in Mahalakhsmi Sugar Mills Co. vs. CIT (1980) 16 CTR (SC) 198 : (1980) 123 ITR 429(SC). We answer the question accordingly.

As regards question No. 2, the facts found are that the amount of Rs. 26,862 in dispute was payable to Rohana Cane Society in respect of the asst. yrs. 1961-62, 1962-63 and 1963-64, and was allowed as a deduction in the said years. However, the above amount remained unpaid till the asst. yr. 1968-69. In the meantime, the assessee- company raised a claim in the same amount against the society for short supply of raw material. The society also raised a counter-claim against the assessee-company for a sum of Rs. 26,862 on account of the latter’s contribution towards the construction of one village road. The dispute between them was referred to arbitration and it was decided that both the parties would withdraw their claims provided the assessee-company bears the cost of the development of the road in the sugarcane area. As the society did not comply with the said decision, the assessee transferred the entire amount of Rs. 26,862 to its P&L a/c on October 31, 1967, and the same was assessed to tax during the asst. yr. 1968-69. Later on, during the accounting year relevant to the asst. yr. 1969-70, the society complied with the arbitrator’s decision and thereupon the said amount became payable to it. Consequently, the assesseecompany claimed the amount of Rs. 26,862 as deduction for the asst. yr. 1969-70 contending that its liability arose afresh in the relevant accounting year. The contention of the assessee was upheld by the Tribunal which led to the reference of the abovenoted question to this Court.

4. The learned counsel for the Revenue, to assail the correctness of the view of the Tribunal, contended that the amount in dispute was payable as interest on sugarcane price and cane commission during the asst. yrs. 1961-62, 1962-63 and 1963-64. As the method of accounting of the assessee was mercantile, the deduction for the said amount could be claimed only in the relevant assessment year. The argument is wholly misconceived. The assessee was made liable to pay this amount in the award not on account of its liability to pay interest but on account of the cost of the development of the road in the sugarcane area. This liability was to arise only on the withdrawal of the claim of the society regarding the said interest. The liability to pay this amount, therefore, accrued during the accounting year relevant to the present assessment year when the society complied with the arbitrator’s decision and withdrew its claim. The liability thus having arisen during the accounting year 1968-69, the Tribunal rightly allowed that deduction and question No. 2 is, accordingly, answered in the affirmative, i.e., against the Revenue and in favour of the assessee.

No costs.

[Citation : 142 ITR 32]