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2017 (8) TMI 610 - HC - Income TaxBusiness expenditure - Deduction of royalty on Bamboo exploited at revised rate - contingent liability or ascertained liability - allowed at rates other than those specified in the 1968 and 1947 agreements drawn with the Government of Maharashtra - claim of the Respondent-Assessee at ₹ 115/- per ADMT under both the 1947 and 1968 Agreement - Held that - Apex Court in Kedarnath Jute Manufacturing Co. Ltd. (1971 (8) TMI 10 - SUPREME Court ) has laid down the text to ascertain whether the amount is a debt by holding that a liability depending upon a contingency is not a debt in presenti or in futuro till the contingency happened. But if there is a debt, the fact that the amount is to be ascertained does not make it any less a debt if the liability is certain and what remains is only quantification Applying the above text, the amount @ ₹ 115/- per ADMT is a debt. The aforesaid observations of the Apex Court would apply to the facts of the present case. In the present facts, the State Government had already by its communication dt.19.3.1983 decided to enhance the rate of royalty to ₹ 230/- per ADMT less discount at the prescribed rates. Besides the assessee therein had not made provision for the liability that may arise or any part of the amount in the previous year relevant to the Assessment Year under consideration. As against that, in the present facts, the Respondent/assessee has not only debited the entire amount of royalty payable according to interim order but has proceeded further and paid that amount also during the previous year relevant to subject Assessment Year 1998- 99. Thus, the decision of this Court in Standard Mills Co. Ltd. (1997 (3) TMI 64 - BOMBAY High Court ) would have no bearing in the context of present facts. - Decided in favour of assessee. Addition on account of interest free loan given to Andhra Pradesh Rayon Ltd - commercial expediency - Held that - This charging of interest on advance made to M/s. Andhra Pradesh Rayons Ltd. would clearly be covered by the decision of the Apex Court in S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals) and another, (2006 (12) TMI 82 - SUPREME COURT ) wherein held that once it is established that there was nexus between the expenditure and the purpose of business (which need not necessarily be the business of the Assessee itself) then the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of directors and assume its role to decide how much is reasonable expenditure having regard to the circumstances of the case. Thus a business decision was taken to give loans to the company of which it is promoter so as to safeguard itself from litigation to pay amounts which were advanced by banks to M/s. Andhra Pradesh Rayons Ltd. of which the Respondent/Assessee was a guarantor. The Order of Tribunal in the Subject Assessment Year relies upon its Order for the earlier Assessment Year wherein the reason for deleting the disallowance of interest was on the ground of commercial expediency in order to stabilize finances of M/s. Andhra Pradesh Rayons Ltd. This holds good for the subject Assessment Year also. - Decided in favour of assessee.
Issues Involved:
1. Deduction of royalty on bamboo exploited at rates other than those specified in the 1968 and 1947 agreements. 2. Deletion of ?1,10,81,900/- on account of interest-free loan given to Andhra Pradesh Rayon Ltd. Detailed Analysis: 1. Deduction of Royalty on Bamboo Exploited: (a) The Tribunal's order dated 29 October 1993 for Assessment Year 1984-85 outlined the historical agreements between the assessee and the government regarding bamboo royalty rates. Initially, the 1947 agreement set a royalty rate of ?5 and 4 annas per tonne, later revised to ?15 per metric tonne (PMT). The 1968 agreement introduced a rate of ?60 per PMT. (b) In March 1983, the Maharashtra Government revised the royalty rate to ?230 per ADMT, with discounts for initial years. This revision was challenged by the assessee in Writ Petition No.914 of 1983, leading to an interim court order allowing a royalty payment of ?115 per ADMT. (c) For the subject Assessment Year, the assessee claimed the entire ?115 per ADMT as revenue expenditure. The Assessing Officer disallowed amounts exceeding the original agreement rates, treating them as contingent liabilities. (d) Both the Commissioner of Income Tax (Appeals) and the Tribunal allowed the assessee's claim, referencing the Tribunal's 1993 order and a Special Bench decision in a similar case, which held that the liability to pay revised royalty rates was incurred once the bamboos were felled and collected. (e) The Revenue argued that the liability at ?115 per ADMT was contingent upon the Writ Petition's outcome, citing the Standard Mills Co. Ltd. case. However, the Tribunal's decision was supported by the Supreme Court's rulings in Kedarnath Jute Manufacturing Co. Ltd. and Kalinga Tubes Ltd., which established that liability accrues when the obligation arises, regardless of ongoing disputes. (f) The Court concluded that the Tribunal's decision was correct, affirming that the royalty payment at ?115 per ADMT was a legitimate deduction, not a contingent liability. 2. Deletion of Interest-Free Loan to Andhra Pradesh Rayon Ltd.: (a) The Tribunal's order dated 9 August 1991 for Assessment Year 1982-83 detailed the assessee's role as a co-promoter and guarantor for Andhra Pradesh Rayon Ltd. Initially, the assessee agreed to provide an interest-bearing loan, later converting it to an interest-free loan due to the company's financial needs and conditions set by the Industrial Development Bank of India (IDBI). (b) The Tribunal and Commissioner of Income Tax (Appeals) allowed the assessee's claim, citing commercial expediency. The decision was based on the Supreme Court's ruling in S.A. Builders Ltd., which emphasized that business decisions made for commercial reasons should not be second-guessed by tax authorities. (c) The Court upheld the Tribunal's decision, affirming that the interest-free loan was a business decision made to stabilize Andhra Pradesh Rayon Ltd.'s finances and safeguard the assessee's interests as a guarantor. Conclusion: The Court answered both questions in the affirmative, in favor of the Respondent/Assessee and against the Applicant/Revenue, thereby allowing the deductions claimed by the assessee. The reference was disposed of accordingly.
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