2003 (10) TMI 23 - HC - Income Tax

Whether the Tribunal was right in law in holding that the interest amount claimed by the ONGC in respect of arrears of its claim for gas liability was also not allowable as the same was contingent liability? - Whether the Tribunal applied the correct principle for computing the profits of Panpharma Division by providing for allocation of the aforesaid expenses reducing the profits of the division for the purposes of the sections 80HH and 80-I ? - Whether the Tribunal was right in law in holding that for the purpose of computation of deduction under section 80HHC 90 per cent. of the income relatable to rent computer charges service charges miscellaneous income and insurance claim was required to be deducted from the profits ? Questions are answered in affirmitive

Issues Involved:
1. Liability towards ONGC
2. Liability to pay interest to ONGC
3. Computation of deduction under sections 80HH and 80-I
4. Deduction under section 80HHC

I. Liability towards ONGC:

The appellant claimed a deduction for the payment to ONGC for gas consumption post-January 29, 1987, arguing that the liability was not contingent since the Supreme Court had previously upheld ONGC's right to demand payment. The Tribunal, however, deemed the liability contingent due to ongoing litigation in the Supreme Court. The court upheld the Tribunal's decision, stating that the liability would remain contingent until the Supreme Court's final adjudication. The court referenced the Supreme Court's decision in CIT v. A. Gajapathy Naidu, which clarified that for mercantile accounting, a liability is incurred when disputes are settled or finally adjudicated.

II. Liability to pay interest to ONGC:

The appellant also claimed a deduction for interest on arrears of the gas liability. The Tribunal disallowed this claim, considering it contingent. The court upheld this decision, reasoning that since the principal liability was contingent, the interest on it was also contingent and could not be allowed as a deduction.

III. Computation of deduction under sections 80HH and 80-I:

The appellant argued that the profits of the Panpharma Division should be computed based on its accounts without allocating indirect expenses incurred by the main division. The Assessing Officer had allocated such expenses, reducing the profits and thereby the deduction under sections 80HH and 80-I. The court upheld the Tribunal's decision, referencing section 80HH(6), which allows the Assessing Officer to compute profits as if transfers between divisions were made at market value. The court emphasized that the market value must be determined objectively and that the appellant had not provided sufficient evidence to challenge the Assessing Officer's allocation of expenses.

IV. Deduction under section 80HHC:

The appellant claimed a deduction under section 80HHC, which the Assessing Officer reduced by excluding 90% of certain incomes like rent and service charges, as per clause (baa) of the Explanation to section 80HHC. The appellant argued that the word "or" in the clause should be interpreted disjunctively, meaning only one type of income should be excluded. The court rejected this interpretation, stating that the provision clearly required reducing profits by 90% of all specified incomes if they were included in the business profits. The court found no ambiguity in the statutory language and upheld the Tribunal's decision.

Conclusion:

The appeal was dismissed on all grounds, with the court affirming the Tribunal's decisions regarding the contingent nature of the ONGC liability and interest, the allocation of indirect expenses for computing deductions under sections 80HH and 80-I, and the interpretation of clause (baa) in section 80HHC.

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