STANDARD TEA EXPORTS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Income-tax Appellate Tribunal, Cochin Bench, referred the following questions of law said to arise from the Tribunal's order for the assessment year 1980-81.

(2.) THE assessee is an exporter of tea. During the previous year relevant to the assessment year 1980-81, the assessee exported tea to Sudan. It had borrowed from the Bank of Baroda for exporting tea. Interest was payable to the bank up to the close of the previous year ending on December 31, 1979. THE Income-tax Officer found that, out of Rs. 4,23,490 debited towards interest and bank charges, a sum of Rs. 3,40,000 was only a provision made by the assessee for interest which it may become liable to pay during the subsequent years. THE case of the assessee was that Sudan is ' a country which had difficulty in meeting its export payment. THErefore, persons who had exported goods to Sudan had to wait for considerable period of time to realise the full sale proceeds. THE exports to Sudan had been guaranteed by the Export Credit and Guarantee Corporation Limited only to the extent of 90 per cent. of the billed amount. THErefore, there is risk to the extent of ten per cent. to the assessee. THE assessee, to cover up the loss, jacked up the export price of tea. Since only 90 per cent. had been guaranteed by the Export Credit and Guarantee Corporation, the assessee made a provision of a sum of Rs. 3,40,000 for the year ending on December 31, 1979, towards the possible loss out of exports to Sudan, It was admitted by the assessee before the Income-tax Officer that no interest was outstanding to the bank as on December 31, 1979. THE claim before the Income-tax Officer was towards a possible loss on account of interest for the period after December 31, 1979, on amounts payable to the bank consequent on the discounting of the export sale bills. THE Income-tax Officer found that there was no accrued interest as on December 31, 1979, and in that view of the matter, he rejected the claim for deduction. In appeal, the stand of the assessee was that the parties in Sudan who imported tea had been overcharged since the assessee had invariably to provide for interest due to delay in realisation of the sale proceeds and that, even though this amount is included in the bill, 90 per cent. of it alone constituted the real income. THE Commissioner of Income-tax (Appeals) did not accept the contention of the assessee and sustained the order of disallowance made by the Income-tax Officer. On second appeal, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals). It is thereafter, that the two questions hereinbefore mentioned were referred to us.

(3.) THE question argued before the Tribunal related to the real nature and character of the claim of deduction. THE claim was considered on the basis of interest or amount covering the risk. As the assessee's representative failed to tell them what exactly is the nature of the risk and as the Tribunal could not get a clear answer, the Tribunal also did not find any risk except the factor of delay which was translated in terms of interest. THErefore, the basis of the claim was only interest and, admittedly, there was no accrued interest payable for the previous year. THE amount was claimed only as an expected loss on account of interest for the period ending on December 31, 1979, and no part of the claim was related to the previous year.