2005 (3) TMI 50 - HC - Income Tax

Deduction - Interpretation of the expression ascertained liability whether provisions of interest can be disallowed as the provisions amounted to unascertained liability. - In the expression ascertained liability the emphasis is on the word ascertained . The word liability is hardly of any consequence as liability to pay is an admitted fact. - Once a matter was ascertained it would be ascertained. Subject or liability in the present case an admitted document was the compromise deed under which the assessee had shown his liability for the previous years and which was accepted as a result of default or delay. The liability under the terms and conditions of compromise cannot be wiped out. It was not a unilateral act on the part of the assessee but was a bilateral consented action on behalf of the parties - As such it cannot be termed as an unascertained liability. - if the workers had raised a claim and the assessee had admitted the liability to the extent of the provision made, then, it would be a matter entitled to the deduction. - assessee would be entitled to deduction because demand of the bank has been admitted by him and a compromise deed is executed which has clauses which would remain in force irrespective of its duration

Summary

Issues: Interpretation of "ascertained liability" in income tax assessment for a specific case.

Analysis:
The judgment delivered by the High Court of Delhi involved the interpretation of the expression "ascertained liability" in the context of an income tax assessment for a particular case. The assessee had filed a return declaring a loss, which was processed without adjustments initially. However, during scrutiny, the Assessing Officer disallowed a deduction for interest amounting to Rs. 49.23 lakhs, considering it as unascertained liability. The Commissioner of Income-tax (Appeals) upheld this decision, but the Income-tax Appellate Tribunal reversed it, stating that the interest liability was ascertained based on the terms of a compromise agreement with a bank.

The Tribunal considered the agreement clauses specifying the interest rate and payment terms, concluding that the liability was not contingent but ascertained. The court noted that the liability arose from a bilateral consented action under the compromise agreement, making it binding and not unascertained. The judgment referenced a case from the Madras High Court to distinguish between contingent and ascertained liabilities, emphasizing that the mere provision by the assessee did not make it unascertained if the liability was admitted and agreed upon in a formal document.

The court further analyzed the definition of "ascertain" from Black's Law Dictionary, highlighting the importance of certainty in determining a liability. It rejected the appellant's reliance on a previous case, emphasizing that the present case involved a binding compromise agreement with clear terms, making the liability ascertained. The judgment concluded that the interpretation of "ascertained liability" in this case aligned with the Income-tax Act's scheme and previous legal principles, dismissing the appeal due to lack of substantial legal questions.