2002 (8) TMI 46 - HC - Income Tax

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and had valid materials to hold that the sum of Rs. 1,46,950 claimed to be amount withheld by the Indian Railways for certain past damages and losses is an admissible deduction? - 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in its conclusion that the amount of Rs. 1,46,950 actually represented amounts withheld and not realisable by the assessee and hence admissible as a deduction? - we answer both the questions referred to us in the affirmative, against the Revenue and in favour of the assessee.

Summary

Issues:
1. Whether the sum claimed by the assessee as amount withheld by the Indian Railways for past damages and losses is an admissible deduction?
2. Whether the amount withheld by the railways and not realizable by the assessee is admissible as a deduction?

Analysis:
Issue 1: The respondent-assessee, a company, filed its return for the assessment year 1985-86 declaring nil income, including a sum of Rs. 1,46,950 as damages and losses paid to the railways. The Income-tax Officer added back this amount as the assessee did not provide details to verify its relevance to the assessment year. The Commissioner of Income-tax (Appeals) held that since the amount related to supplies made in earlier years, it could not be considered for the current year's income calculation. The assessee argued that the amount represented deductions made by the railways in current bills, constituting a business loss. The Tribunal, considering the real income theory, concluded that the amount, though payable to the assessee, could not be added to its income as it was not received, thus disallowing the addition.

Issue 2: The High Court rejected the Revenue's argument against allowing the deduction of the sum withheld by the railways, as the Tribunal had factually established that the amount was deducted in bills relevant to the assessment year in question. The Court emphasized that the unrealized amount could not be considered as income, supporting the Tribunal's decision. Additionally, the Court noted the Tribunal's reference to the assessee's claim for bad debts, which was not a part of the questions referred. As the only questions related to the amount withheld by the railways, the Court upheld the Tribunal's decision that the sum of Rs. 1,46,950 was an admissible deduction, ruling in favor of the assessee and against the Revenue.

In conclusion, the High Court affirmed the Tribunal's decision, holding that the sum claimed by the assessee as withheld by the Indian Railways was an admissible deduction, answering both questions in favor of the assessee and against the Revenue.