COMMISSIONER OF INCOME TAX Vs. POLLY CONTAINER INDUSTRIES

JUDGEMENT

(1.) IN compliance with the order of this Court dt. 1st November, 1982, the Tribunal referred the following two questions for the opinion of this Court under s. 256(2) of the IT Act, 1961 :

(2.) THE assessee is a registered firm doing business in manufacture of containers. It was a sub-allottee of a shed in Guindy Industrial Estate in 1966. THE assessee thought that no rent is payable to the Government by the sub-allottee in view of the fact that full rent was already paid by the main allottee. However, the assessee was made liable to pay the amount of Rs. 88, 127 which included the arrears of rent for the earlier years by Government Order dt. 26th August, 1975. In the accounts of the assessee for the year ended 30th September, 1975, the assessee claimed deduction of the said amount of Rs. 88, 127. THE case of the Revenue was that either the claim should be allowed in an earlier assessment year when the rent accrued or in the latest assessment year in which the demand for payment of the amount by the Government was received by the assessee. Significantly, the admissibility of the claim for deduction was itself not in dispute. THE Tribunal found that the liability came to be ascertained and became payable only when the Government passed the order dt. 26th August, 1975, and therefore, in accordance with the mercantile system of accounting followed by the assessee, the liability was taken in the previous year ended 30th September, 1975 and was an admissible deduction in computing the total income of the asst. yr. 1976-77. Before this Court, learned junior Standing appearing for the Department submitted that the demand was made for the payment of arrears of rent of the earlier years on 20th January, 1976 which falls outside the relevant assessment year under consideration. THErefore, the arrears of rent paid by the assessee in view of the Government Order dt. 26th August, 1975 cannot be allowed as deduction in the asst. yr. 1976-77. According to the learned standing counsel for the Department, the amount is payable at the end of every month. If the accumulated rent is paid on a subsequent date it cannot be allowed as a deduction in that year. However, the case of the assessee is, the assessee was under the impression that he need not pay the rent since the assessee was permitted to occupy the portion by the regular tenants. But later on, the Government by an order dt. 26th August, 1975 directed the Director of Industries to collect 100 per cent rent from both the chief tenant and the sub-tenant. Hence, in view of the above said order, the arrears of rent is payable in accordance with the Government Order dt. 26th August, 1975. THE assessee followed the mercantile system of accounting for the asst. yr. 1976-77 for payment of arrears of rent. THErefore, the arrears of rent claimed by the Government is allowed in the asst. yr. 1976-77 as deduction.

(3.) ACCORDING to the assessee, inasmuch as the provision was made for payment of arrears of rent as per the Government Order dt. 26th August, 1975, the arrears of rent claimed by the Government is allowable as deduction in the asst. yr. 1976-77.