COMMISSIONER OF INCOME TAX Vs. KUMARAN AND CO

JUDGEMENT

(1.) THE following two questions of law have been referred to this court at the instance of the Revenue :

(2.) THE assessee is a registered firm. THEy were abkari contractors. We are concerned with the assessment year 1982-83 for which the relevant accounting period ended on March 31, 1982. During the year, the appellant was a successful bidder in bidding 14 arrack shops. THE total kist payable for those shops was Rs. 24,16,900. THE appellant paid only Rs. 10,51,413 as on the last date of the previous year, i.e., March 31, 1982. This amount included Rs. 84,653 being the interest on security deposit. A balance amount of Rs. 13,65,487 towards kist apart from interest of Rs. 1,14,321 was due. THE appellant made a provision for these amounts in the account as on March 31, 1982. THE Income-tax Officer disallowed the provision stating that the appellant had no liability to pay any further kist as the matter was to be adjudicated afresh by the Kerala Government in view of the decision in Issac v. Assistant Excise Commissioner [1984] KLT 88. THE Income-tax Officer disallowed the provision aggregating to Rs. 15,33,264. THE assessee appealed before the Commissioner of Income-tax. THE Commissioner concurred with the Income-tax Officer and held that there was no further liability for payment of kist as on March 31, 1982. Further, the Commissioner allowed deduction of Rs. 6, 83,250 and Rs. 1,12,990 by way of kist and interest paid by the assessee as per the directions of this court. To that extent, the appeal was allowed. On second appeal, the Income-tax Appellate Tribunal disagreed with the Commissioner of Income-tax and held that the liability to pay the balance of kist and interest was very much there on March 31, 1982. THE Appellate Tribunal relied on the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363. THE Tribunal held that the provision made by the assessee in his accounts for an amount of Rs. 14,79,808 is allowable. It is thereafter at the instance of the Revenue that the two questions aforementioned were referred to this court for decision.

(3.) IT is observed that it is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before the higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum, liability, etc. Reference was made to the decision in Pope the King Match Factory v. CIT [1963] 50 ITR 495 (Mad). In that case, a demand for excise duty was served on the assessee. He debited that amount in his accounts on the last day of his accounting year and claimed that amount as a deductible allowance on the ground that he was keeping his accounts on the mercantile basis. He was objecting to the assessment and seeking to get the order of the Collector of Excise reversed. The Madras High Court held that the assessee incurred an enforceable legal liability on and from the very date on which he received the Collector's demand for payment and that his endeavour to get out of that liability by preferring appeals could not, in any way, detract from or retard the efficacy of the liability which had been imposed upon him by the competent excise authority. The Supreme Court observed that the above decision of the Madras High Court lays down the law correctly. The assessee was, therefore, entitled to make a provision for the balance kist amount payable together with the interest thereon. He is entitled to a deduction when the liability accrues and the liability accrues as soon as the auction is knocked down in his favour and the contract is entered into between him and the State.