COMMISSIONER OF INCOME TAX Vs. MICO LTD.

JUDGEMENT

(1.) THE assessee company entered into an agreement with Ghaziabad Engineering Company Private Ltd., on 9 -2 -1977 to get some services rendered by them for which the assessee had to pay a consideration of Rs. 5,50,000/ - per year. The tenure of the contract was two years and fees had to be made in advance. The first installment was payable on 19 -2 -1977 and the second, a year after. Thereafter deduction was claimed by the assessee relating to the second installment as it fell during the period of account. Disallowance was made in the assessment on the ground that there was No. supporting evidence proving performance of the contract by GEC. The tribunal noticed on an earlier occasion this very issue and remitted the matter back to the commissioner for reconsideration. The remand is for the reasons mentioned in detail in the order of the tribunal. The tribunal did not accept the contention of the assessee. The assessee claimed sum of Rs. 33,00,000/ - being the installment payment made to GEC. GEC was the sole distributor for MICO products in certain states of North India and the distribution agreement was for a certain period. Since it was prematurely cancelled by the assessee, the assessee had to agree to pay compensation of Rs. 99,00,000/ -payable in installments in triennium, but such installment was payable in the year of account. Assessee paid a compensation of Rs. 99,00,000/ -and claimed deduction of the same in the assessment for the year 1970 -79. There was dispute between the assessee and the revenue, not only with regard to allowability of the same for the year 1978 -79 but also whether the expenditure could go into the revenue field. The tribunal held that if Rs. 99,00,000/ - is allowed as deduction in the assessment year 1978 -79 then there could be no deduction in this year and if at all deduction is to be allowed, it would be of the sum of Rs. 33,00,000/ - paid in this year. The tribunal in the light of a reference application has chosen to refer the following questions of law in the light of the order passed in RA No. 198/Bang/1995, RA No. 213/bang/1995 and RA No. 214/Bang/1995. RA No. 198/Bang/1995;

(2.) THE facts regarding the question suggested by the revenue in reference application in RA No. 213 and 214/1995 are as under;

(3.) HEARD the learned Counsel for the assessee. He would take us through the material on record in support of his submission. He refers to the agreement dtd 9 -2 -1977. Various clauses are read over to us. He would say that various services have been rendered by the Company and the company had long standing relationship in the matter. He would also say that on an earlier application, the authorities accepted the expenditure of Rs. 2.75 lakhs and the issue of remaining Rs. 2.75 lakhs is not considered as the matter was remanded and the matter is pending decision. In these circumstances, he wants the first question to be answered in favour of the assessee. He would rely on certain judgments in support of his submission. He would say that in the event of the first question being answered in favour of the assessee, there is no need to consider the second question.