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Issues Involved: Interpretation of deductions u/s 256(2) of the Income-tax Act, 1961 regarding compensation and fees payable to Dorr Oliver Inc. of U. S. A. under an agreement dated January 1, 1959.
Judgment Summary: Issue 1: Whether the sum of Rs. 19,81,625 payable to Dorr Oliver Inc. was admissible as a deduction in the computation of the assessee's total income. The Income-tax Appellate Tribunal disallowed the deduction, citing lack of specific approval from the Government of India. The Commissioner (Appeals) upheld this decision based on the non-enforceable nature of the agreement post June 30, 1972. The Tribunal allowed only a portion of the claim, considering the approval for a lesser amount. The High Court affirmed that the liability did not accrue without the necessary approvals, following the precedent set in Nonsuch Tea Estate Ltd. v. CIT [1975] 98 ITR 189. Issue 2: Whether the entire amount of Rs. 28,60,361 payable to Dorr Oliver Inc. was deductible in arriving at the assessee's total income. The High Court held that the liability to pay the compensation accrued only upon approval by the Government of India in 1980, not prior to that date. The Foreign Exchange Regulation Act prohibited accrual without such approval, aligning with the decision in Nonsuch Tea Estate Ltd. v. CIT [1975] 98 ITR 189. The Court emphasized that the liability must arise only upon the grant of necessary approvals. Separate Judgment by Judge A. Y. SAKHARE: The Judge concurred with the main judgment, emphasizing that the liability claimed by the assessee was not an accrued liability in the relevant year and therefore not deductible. The decision was based on the requirement of approval from statutory authorities for the liability to accrue. This reference is disposed of with questions (1) and (2) answered in the negative and in favor of the Revenue, in line with the legal principles established by relevant precedents.
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