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1989 (12) TMI 78 - AT - Income Tax

Issues:
- Allowability of deduction on account of interest claimed to be payable on a liability taken over by the assessee.

Detailed Analysis:
The judgment involves three appeals by the department against separate orders of the first appellate authority for the assessment years 1980-81, 1981-82, and 1982-83. The main issue in all three appeals is the allowability of deduction for interest on a liability taken over by the assessee from the vendor. The liability in question pertains to excess realisation of sugar sales, and the dispute centers around whether the assessee is liable to pay interest on this transferred liability. The first appellate authority allowed the deduction for the assessment year 1981-82, stating that the assessee, having taken over all assets and liabilities of the vendor, was entitled to claim interest under the Levy Sugar Price Equalisation Fund Act, 1976, irrespective of specific mention in the agreement or debit entries in the books of account.

The arguments presented before the tribunal revolved around whether the liability was disputed by the vendor and whether the assessee had passed debit entries for the interest amount in its books of account. The department contended that the liability was doubtful and disputed, and since no debit entries were made, the deduction should not be allowed. Conversely, the assessee argued that upon taking over the liabilities, it became liable to pay both the principal amount and the statutory interest, as per the provisions of the 1976 Act. Reference was made to legal precedents to support this position.

Upon careful consideration of the facts and relevant provisions of the 1976 Act, the tribunal concluded that the assessee's claim for deduction of interest charges could not be allowed for any of the three years in question. While acknowledging the liability of the assessee to pay the principal amount and any interest chargeable thereon post the purchase of the distillery division, the tribunal delved into the specific provisions of the 1976 Act. It highlighted that the legislative policy under the Act did not mandate payment of interest during the operation of an interim court order, as evidenced by sub-sections (4) and (5) of section 3. The tribunal emphasized that the requirement to pay interest only arose upon final disposal of proceedings, and since no interest was payable during the interim order period, the liability did not extend to the assessee.

In light of the above analysis and legal interpretation, the tribunal held that the assessee was not liable to pay interest on the liability for the relevant assessment years. The tribunal found that the first appellate authority erred in allowing the deduction and, consequently, allowed the department's appeals, setting aside the orders of the first appellate authority and restoring those of the Income-tax Officer.

 

 

 

 

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