1994 (7) TMI 81 - HC - Income Tax

Assessment Year, Business Expenditure, Finding Of Fact, Income Tax Act, Mercantile System, Question Of Law

Summary

Issues:
1. Entitlement to claim deduction on ocean loss for assessment year 1981-82.
2. Liability of refineries for ocean loss in excess of 0.5% and deduction for donation made to Medical Aid Society.

Entitlement to claim deduction on ocean loss for assessment year 1981-82:
The assessee, a crude oil refining company, claimed ocean loss deductions for the assessment years 1981-82 and 1982-83. The dispute revolved around the liability of refineries for ocean loss in excess of 0.5% as per a government letter issued on January 31, 1981. The Department argued that the liability arises only after calculations per the letter, while the Tribunal held that the liability arose in the accounting years in question, despite subsequent calculations. Since the assessee followed the mercantile system of accounting, the loss could be claimed in the year the liability arose. The High Court upheld the Tribunal's view, stating that the letter imposed a liability on refineries for excess ocean loss, and no purpose would be served by referring the matter to the Tribunal.

Liability of refineries for ocean loss in excess of 0.5% and deduction for donation:
The government letter of January 31, 1981, imposed a liability on refineries to bear ocean loss in excess of 0.5%. The High Court concurred with the Tribunal's decision that the liability arose in the relevant accounting years, aligning with the mercantile system of accounting followed by the assessee. As the liability was established by the letter, the Tribunal's decision was upheld. The other issue regarding the deduction for a donation made to the Medical Aid Society was deemed to be based on factual findings and was dismissed.