2018 (6) TMI 514 - TELANGANA AND ANDHRA PRADESH HIGH COURT

Liability to pay the liquidated damages - accrual of liability - payment as per terms of the agreement accrued when the delivery was made within the previous year ended 30.06.1983 - Held that:- As decided in assessee's own case the right to receive the extra price arose when the delivery was made, and the assessee had actually accounted for the extra price when the goods were actually delivered. - Decided in favour of the assessee

Provision made for increase in wages on the basis of the Wage Board Award - assessee agreed before the Arbitrators that the award shall come into operation from an earlier date? - Held that:- Section 145 was substituted in the Income-tax Act with effect from 01.04.1997, and sub-section (3C) was inserted into Section 211 of the Companies Act with effect from 31.10.1998, more than 12 years after the assessment year 1984-85 which is the relevant period with which we are concerned in the present case. As neither of these provisions were in the statute book during the relevant previous year 01.07.1982 to 30.06.1983, reliance placed on behalf of the assessee, on the judgment in Pact Securities and Financial Services Ltd.10 which had placed heavy reliance on the aforesaid two provisions to hold that Accounting Standards should be followed, is misplaced.

Liability to pay tax cannot be determined relying on its possible consequences of whether or not it would make any difference if the deduction is claimed in one year or the other. The consequences of the liability being held to arise in a previous year, different from the previous year in which the liability actually arose, are many. It is wholly unnecessary for us to make a detailed analysis of such consequences as the Income-tax Act makes an assessee liable to tax on the income which accrued in his favour in the previous year; and, in determining such income, the liability/expenditure incurred in such a previous year alone should be take into consideration. - Decided against assessee

Deduction towards commission payable to two agents in Sri Lanka - accrual of liability - Held that:- As the assessee maintained its books of accounts, under the mercantile system of accounting, their liability to pay commission to the agents arose in the relevant previous year in which the agent secured the order; and as, in the present case, both the agents had secured orders from the clients in Sri Lanka, during the previous year relevant to the assessment year 1984-85, the Tribunal has, in our view rightly, held that the liability to pay commission accrued when the orders were secured by the agents, and not when supplies were effected by the assessee. This question is answered in the affirmative, in favour of the assessee

Weighted deduction u/s 35-B with respect to payment of commission - Held that:- Neither does the agreement, between the assessee and its Sri Lankan Agent, disclose fulfillment of the ingredients of Section 35-B(1)(b)(iv), nor was the payment of 500,00 U.S dollars, by the assessee to its agent, made for any expenditure incurred in the promotion of the sale outside India of the assessee's goods. In the present case, the assessee has not discharged the onus of establishing that the expenditure was wholly or exclusively incurred for the purposes mentioned in Section 35-B(1)(b)(iv) of the Act. The Tribunal fell in error in holding otherwise. This question is answered in the negative, in favour of the Revenue

Deduction of insurance premium payable for a policy to cover all risks in erection of the project in Sri Lanka - Held that:- It is only on the date on which the insurance premium is paid or, in terms of the facility extended by the Insurance Corporation of Sri Lanka, the first installment, of the insurance premium payable in four installments, is actually paid, can the assessee claim that the liability to pay the insurance premium had arisen. As, admittedly, no amount was paid towards insurance premium, in the previous year 01.07.1982 to 30.06.1983 (as is evident from the letter of the Insurance Corporation of Sri Lanka dated 30.06.1983), the liability towards the insurance policy did not arise in the previous year 01.07.1982 to 30.06.1983, since the basic condition, relating to actual payment of insurance premium, had not been fulfilled by the assessee by then - Decided in favour of the Revenue

Liability to pay commission under the agreement - accrual of liability - Held that:- The obligation to pay commission, in terms of Clause (1) of the agreement, is on the procurement of an order by the agent, and the agent had procured the order during the previous year 01.07.1982 to 30.06.1983. Notwithstanding the fact that the obligation to make payment of commission was dependent on receipt of payment from the client, the liability to pay commission arose on the date on which the order was procured by the agent. The view taken by the Tribunal, that the liability arose, on the date on which the order was procured by M/s. Annapurna Agencies, is a possible view. Even if the view taken by the revenue is presumed also to be a possible view, it cannot be overlooked that, even if two views are possible, the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute - Decided in favour of assessee.