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2005 (9) TMI 49 - HC - Income TaxContractual liability - car price difference - assessee was responsible for making the payment of the differential amount and the assessee has not accepted such liability - Whether Tribunal was justified in allowing the assessee s claim of Rs. 2,76,419 representing car price difference, holding that the liability accrued and arose during the accounting period relevant to the assessment year under consideration as a result of final agreement dated September 20, 1981? - in the present case the liability was not in the nature of statutory liability. The demand raised by M/s. Premier Automobiles Ltd. was disputed by the assessee which was in the nature of contractual liability which was finally settled only on September 20, 1981, and thus the liability to pay accrued only on September 20, 1981, relating to the year under consideration and has been rightly held as allowable deduction by the Tribunal in the year under consideration
Issues Involved:
1. Whether the liability accrued and arose during the accounting period relevant to the assessment year 1982-83. 2. Whether the Income-tax Appellate Tribunal was justified in allowing the assessee's claim of Rs. 2,76,419 as a deduction. Issue-wise Detailed Analysis: 1. Accrual of Liability: The primary issue was to determine when the liability to pay the difference in car prices accrued for the assessee. The assessee, a dealer of M/s. Premier Automobiles Ltd., claimed a deduction of Rs. 2,76,419 for the assessment year 1982-83, arguing that the liability arose from a final agreement dated September 20, 1981. This amount represented the difference between the selling price fixed by the Government's notification in 1969 and the price revised following a Supreme Court judgment in 1971. The assessee contended that the liability was not statutory but contractual and crystallized only upon the final settlement in 1981. 2. Justification of Tribunal's Decision: The Assessing Officer initially rejected the claim, stating that the liability related to the period 1969-1971 and should have been accounted for in 1971 when the Supreme Court's judgment was delivered. The Commissioner of Income-tax (Appeals) upheld this view. However, the Tribunal allowed the deduction, reasoning that the liability, although related to earlier years, was not statutory but contractual and was settled only in 1981. The Tribunal noted that the dispute was ongoing until the final agreement in 1981, thus the liability accrued in the year under consideration. Relevant Case Laws: - CIT v. Laxman Dass [2000] 246 ITR 622 (All): This case established that liability accrues when it is finally settled, not merely when a claim is made. - Saraya Sugar Mills P. Ltd. v. CIT [1979] 117 ITR 344 (All): The court upheld that rent paid in a lump sum should be disallowed in full in the year of payment if the liability accrued over several years. - CIT v. Roberts McLean and Co. Ltd. [1978] 111 ITR 489 (Cal): It was held that business liability is incurred in the accounting year when the matter is settled, not when the dispute arises. - CIT v. Oriental Motor Car Co. P. Ltd. [1980] 124 ITR 74 (All): The court held that liability accrues when it is admitted, not when the claim is made. - Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33 (All): The court differentiated between statutory and contractual liabilities, stating that contractual liabilities accrue when settled. Court's Conclusion: The court concluded that the liability in question was of a contractual nature and not statutory. The demand by M/s. Premier Automobiles Ltd. was disputed by the assessee and was finally settled on September 20, 1981. Thus, the liability to pay accrued only on that date, making it relevant to the assessment year 1982-83. The Tribunal's decision to allow the deduction was justified as the liability crystallized in the year under consideration. Final Judgment: The court answered the referred question in the affirmative, in favor of the assessee and against the Revenue, confirming that the Tribunal was justified in allowing the deduction. There was no order as to costs.
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