COMMISSIONER OF INCOME TAX Vs. NATHMAL BHUWALKA

JUDGEMENT

(1.) Nathmal Bhuwalka, the assessee, carried on business of running a colliery. It is not in dispute that in respect of the colliery. royalty was payable by the assessee to the State Government for every month by the 15th day of the next month, failing which interest at the rate of 12 per cent, per annum became payable on the amount of royalty in arrears by the assessee.

(2.) In the assessment year 1970-71, the corresponding accounting period ending on the Ram Navami day, being some time in April of the year 1970-71, the assessee was assessed to income-tax. In its return, the assessee had claimed deduction of an amount of Rs. 25,000 which the assessee had provided for meeting the liability to pay interest to the State Government on account of its delay in payment of royalty. It is not in dispute that at the beginning of the accounting period, a substantial sum had become due from the assessee to the State Government on account of royalty apart from the monthly accrual of further liability on account of such royalty. The Income-tax Officer disallowed the deduction of the amount set apart on the ground that this was a mere provision. On an appeal, particulars of the arrears of royalty and the accrual of interest thereon in the relevant year were submitted before the Appellate Assistant Commissioner calculated at Rs. 30,010. The Appellate Assistant Commissioner held that the liability for payment of interest would arise in the hands of the assessee only on issue of a notice of a public demand raised by the Certificate Officer. Till such notice was issued, it could not be said that there was any liability to pay interest on outstanding royalty. The Appellate Assistant Commissioner confirmed the decision of the Income-tax Officer on the above ground.

(3.) On further appeal before the Tribunal, the assessee filed particulars of the assessee's claim showing that up to March 31, 1970, i.e., by the end of the relevant accounting year, a sum of Rs. 30,010 had become payable to the State Government towards interest on the arrears of royalty. The Tribunal noted that in the earlier assessment years, from 1967-68 to 1969-70, the same provision made by the assessee on this account had been allowed as a deduction. The Tribunal held that the liability to pay interest to the State Government arose automatically on the date or dates of default of payment of royalty and continued up to the date of payment. The Tribunal, accordingly, held that deduction should have been allowed to the extent the provision was made by the assessee in its accounts for meeting the said liability which had accrued. The claim of the assessee was allowed.