1988 (4) TMI 104 - AT - Income Tax

Summary

Issues:
Interpretation of liability under the Carriers Act, 1865 for compensation arising from an accident involving a truck. Determination of the deductibility of claimed amount from total income for the relevant accounting period.

Analysis:
The case involved a private limited company engaged in the business of truck transportation facing a claim of Rs. 11,56,106 due to an accident involving one of its trucks. The claim was made by a sister concern that had hired the truck for carrying goods, following which an arbitrator awarded the amount to be paid by the company. The company disputed the claim, arguing the accident was an act of God and the driver was not negligent. The Income Tax Officer (ITO) held that the liability did not crystallize during the accounting period, leading to a non-deductibility decision.

Upon appeal, the Commissioner of Income Tax (Appeals) upheld the decision, stating that the liability became ascertained and payable only in a later year, hence not allowable in the year under consideration. The company challenged this finding, citing the Carriers Act, 1865, claiming its liability as a common carrier arose immediately upon the loss occurrence, irrespective of quantification delays.

The company's argument relied on legal opinions and precedents emphasizing the absolute and statutory nature of common carrier liability, suggesting immediate claim accrual upon loss. However, the revenue authorities contended that the liability was contractual, arising from an agreement with the sister concern, and only crystallized upon arbitration settlement and court confirmation in 1983.

The Tribunal analyzed the situation, emphasizing that under the Carriers Act, 1865, only the owner or their agent could claim compensation for goods loss during transit. Since the owners did not claim against the company but against the sister concern, the liability did not arise against the company under the Act. The Tribunal concluded that the liability to pay compensation was contractual, not statutory, governed by the agreement between the company and the sister concern, and payable in the year of settlement, aligning with the CIT(A)'s decision.

Therefore, the Tribunal rejected the company's appeal, affirming that the liability was contractual, not statutory, and payable only upon settlement in 1983, as determined by the CIT(A).