Commissioner of Income Tax vs Rayex India Ltd

U.T. Shah, J.—In this reference, the Revenue is contesting certain expenditure allowed by the Tribunal in connection with the assessee''s dealing with the State Trading Corporation of India ("the STC").

The assessee is a company and is engaged in export of silk, rayon, art silk fabric, etc. The assessment years are 1972-73 and 1973-74. The relevant previous years are the corresponding financial years ended on March 31, 1972, and 1973, respectively.

The assessee had entered into an agreement with the State Trading Corporation of India for import from Japan against Yen credit on deferred payment basis six sets of "TSUDAKOMA" sizing and warping machines. These machines were expected to be allotted to the members of the silk and rayon textile industry and other persons in the trade. The purchasers of these machines were assured certain benefits by the State Trading Corporation of India. The machines were imported from Japan and were stored in the warehouse. As the State Trading Corporation of India was not in a position to fulfill certain benefits assured to the purchasers, the machines were lying in the warehouse. For the years under reference, the State Trading Corporation of India issued a debit note of Rs. 6,58,757 in the first year and Rs. 7,83,592 in the second year as godown rent, insurance charges, etc., on the assessee. As the assessee was following the mercantile system of accounting, it claimed deduction of these two amounts in computing its total income. The Income Tax Officer disallowed the assessee''s claim mainly on the ground that certain disputes had arisen between the assessee and the State Trading Corporation of India. It is not clear as to what type of disputes had arisen. However, it could be gathered from the facts mentioned above, that the State Trading Corporation of India was not in a position to fulfil certain benefits assured to the purchasers of the machinery imported from Japan. Keeping this in view, the Income Tax Officer held that since the assessee has disputed the liability, it was not entitled to deduction of these two amounts.

In appeal, the Appellate Assistant Commissioner of Income Tax accepted the assessee''s claim for deduction of the aforesaid amounts on the basis of the order of the Income Tax Appellate Tribunal in the assessee''s own case for the assessment years 1969-70 to 1971-72. Extracting the following passage :

"So, in the present case, when the liabilities were ascertained ones, the taxing authorities were bound to allow deduction thereof even if the assessee had disputed the liability and tried to get rid of the same."

The Appellate Assistant Commissioner allowed the assessee''s claim for deduction of the two amounts involved in the respective years.

Thereafter, the Revenue came up in appeal before the Tribunal and the Tribunal, also following its earlier order referred to by the Appellate Assistant Commissioner, upheld the election of these two amounts.

Being aggrieved by the order of the Tribunal, the Revenue made an application u/s 256(1) of the Act and the Tribunal has referred the following question for the assessment year 1972-73 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the assessee-company''s claim of Rs. 6,58,757 under godown rent, interest and insurance charges said to be payable to the State Trading Corporation as ascertained liabilities having regard to the facts that the same were liabilities in dispute ?"

It may be mentioned that a similar question is also referred for the assessment year 1973-74 where the amount involved is Rs. 7,83,592.

Learned counsel for the Revenue placed strong reliance on the orders of the Income Tax Officer and submitted that since the liability was in dispute in the years under consideration, the assessee was not entitled to deduction of these two amounts. He, however, was fair enough to invite our attention to the decision of the Supreme Court in the case of The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, , which would support the action of the Tribunal accepting the assessee''s claim for deduction of the two amounts involved. Learned counsel for the assessee, apart from relying on the said decision of the Supreme Court, has also relied on the decision of this court in the case of Commissioner of Income Tax Vs. Phalton Sugar Works Ltd., , wherein this court has approved the allowance of certain deduction which had arisen under a contract between the assessee and a Government Corporation. He, therefore, submitted that the reference should be answered in favour of the assessee.

On due consideration of the rival submissions of the parties and in view of the aforesaid two direct decisions on the point involved in the present reference, we do not deem it fit to discuss elaborately about the claim made by the assessee. Suffice it to say that in view of the ratio laid down in the aforesaid two decisions, no fault could be found in the order of the Tribunal allowing the assessee''s claim for deduction of the two amounts involved. Further, the Revenue has not been in a position to state what type of dispute had arisen between the assessee and the State Trading Corporation of India. There is nothing on record to suggest that the assessee was disputing the debit notes raised by the State Trading Corporation of India. In this view of the matter, we answer the question referred to us in the affirmative and in favour of the assessee.

Before we part with this judgment, we would like to make certain observations. At the end of the statement of the case, the Tribunal has stated as under :

"The Commissioner undertakes to produce before the High Court at the hearing or the present reference application the requisite number of certified copies of the Statement of the Case in Reference Applications Nos. 666 to 668/(Bom) of 1973-74."

We are constrained to observe that at the time of hearing of the reference the Revenue had not placed before us the requisite copies of the statement of the case in Reference Application Nos. 666 to 668/(Bom) of 1973-74. Further, even the first order of the Tribunal, wherein the Tribunal has discussed the point at issue, was also not placed before us. Therefor, the hearing of the reference had proceeded on the material available in the paper book as well as certain statements made by the parties. It is expected of the Tribunal to take proper care in sending the statement of the case for the opinion of this court containing all the relevant material including its "speaking order", if in the subsequent order it has simply followed its earlier order.

No order as to costs.