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TMI Blog1986 (5) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... Nagesh Pai. 2. The assessee is a cashew exporter. Certain liabilities towards foreign claims had been incurred in the accounting year relevant to the assessment year in question. There were four such claims in all. They are as follows: Rs. (i) Hollander Trading Corporation as per arbitrator's award dated 23-8-1977 and 28-8-1977 2,48,400 (ii) Gibbs Nathaniel as per arbitrator's award dated 28-2-1978 4,53,200 (iii) Zaloom Bros. Co., New Jersey Inc. as per arbitra- tor's award dated 1-6-1977 ($ 15,150) 1,21,200 (iv) Balfour Maclaine International Ltd., New York as per arbitrator's award dated 7-9-1977 11,66,400 The assessee's case before the ITO was that all the four claims mentioned above were settled through arbitration and, hence, constituted the assessee's liability of the year in which the arbitration award was given, viz., the assessment year under consideration. The four claims broadly fell into two categories. The first two claims aggreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the year of account. It was also contended that the Commissioner (Appeals) had held that the amount payable as compensation was a debt owed by the assessee as on the valuation date which coincided with the last day of the previous year, viz., 31-3-1978. The ITO, who submitted the remand report, had stated that the alleged claim for payment of compensation could itself be stated as not genuine. According to him, it would appear that the claims were collusive. The main reason given for coming to this conclusion is that in respect of three of the four parties for whom compensation was payable, the assessee has been carrying on business even after the non-fulfilment of the contracts in 1977 and no attempt has been made by any of these three foreign buyers to adjust the amount of compensation said to have been payable to them against the purchase price involved in the numerous trading transactions carried on subsequently with the assessee. The ITO felt that the assessee's failure to produce any correspondence from the foreign buyers calling upon the assessee to pay the compensation awarded by the arbitrator or any evidence showing an earnest effort on the part of the assessee in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that even in respect of a contingent liability it is possible to estimate its value as on a date prior to the liability becoming an ascertained liability and to allow such an estimated value as a deduction being a debt owed as on the valuation date. He, therefore, concluded that there is absolutely no material on record to show that the assessee had accepted the arbitration awards in any of the four cases and held that the amount of compensation of Rs. 19,89,200 said to have been payable to the foreign buyers did not constitute admissible foreign business expenditure for the year of account. Regarding the disallowance by the ITO of Rs. 20,000 out of car expenses, the Commissioner (Appeals) agreed with the finding of the ITO on the ground that the use of the car for personal purposes was not denied by the assessee. Regarding the weighted deduction claimed by the assessee under section 35B in respect of a number of items of expenditure, the Commissioner (Appeals) following the decisions of the Tribunal in a number of cases, held that the commission paid to Kasturi Nagesh Pai amounting to Rs. 2,44,760 is an allowable deduction. As against this order of the Commissioner (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. He contended that the aforesaid clause is only a formal clause which finds place in the conditions of sale. In support of the aforesaid fact, he relied upon the decision of the Supreme Court in Badat Co. v. East India Trading Co. AIR 1964 SC 538 at page 551. In the aforesaid case also the parties had expressly agreed that judgment might be entered on any award that might be made on any question, controversy or claim between the parties arising under or out of the said contracts in accordance with the practice of any Court having jurisdiction. He vehemently contended before us that when once the liability is created and is binding between the parties under section 4 it is not permissible for the parties to contract against the statute and, therefore, the presence of clause 5 in the conditions of sale cannot be taken as an advantage by the revenue to say that the liability arose only when the award is made a rule of the Court. The learned counsel did not press ground No. 2. Regarding ground No. 3 he contended that following the decision of the Special Bench of the Tribunal in J.H. Co. v. Second ITO [1982] 1 SOT 150 (Bom.) the ITO should have allowed 75 per cent of the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitration without intervention of Court (Chapter 2), (ii) arbitration with intervention of Court where no suit is pending (Chapter 3), and (iii) arbitration in suits (Chapter 4). He, therefore, contended that the decision relied upon will equally apply to the case of the assessee as the case of the assessee also falls under Chapter 4 of the Arbitration Act mentioned supra. He next contended that since the parties have agreed that the award would be binding on them only when it is made a rule of the Court, the award becomes a pucca award and the liability in praesenti is created. In the present case the liability created by the award is only a contingent liability, i.e., liability in futuro. For the aforesaid proposition he relied upon the decision of the Supreme Court in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 at P. 598. He then drew our attention to the last sentence of para 9 of the Commissioner (Appeals)'s order and contended that since no definite finding is given by the Commissioner (Appeals) regarding the genuineness of the award, the matter may be remitted back to the file of the Commissioner (Appeals) to give a finding on this aspect. With regard to the third gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 5 of the Foreign Awards (Recognition and Enforcement) Act lays down the procedure for filing an award in a Court having competent jurisdiction and section 6 of the Foreign Awards (Recognition and Enforcement) Act provides that if the Court is satisfied that the foreign award is enforceable under the Act, the Court shall order the award to be filed and shall proceed to pronounce judgment according to the award. Sub-section (2) of section 6 provides that on a judgment so pronounced a decree shall follow and no appeal shall lie from such decree except insofar as the decree is in excess of or not in accordance with the award. As pointed out earlier one may have to execute a decree for collecting the amount awarded by arbitration in a Court of law. In our opinion, sections 5 and 6 are the provisions prescribing the procedure for filing a foreign award in a Court of competent jurisdiction and obtaining a decree for enforcing the same. On a reading of section 7 of the Foreign Awards (Recognition and Enforcement) Act, it is seen that the pleas available to the defendant that is the person against whom the award is passed are very limited, inasmuch as he cannot question the award on mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the ITO. The order of the ITO is confirmed by the Commissioner (Appeals). Following the Special Bench decision in the case of J.H. Co. we are of the opinion that 75 per cent of the salary paid and 50 per cent of the stationery should have been allowed as a deduction by the lower authorities. The same is, therefore, allowed. 9. One more item of disallowance is the commission paid to Kasturi Nagesh Pai, amounting to Rs. 2,44,760. This amount was allowed by the Commissioner (Appeals) against which the department is in appeal. The learned departmental representative contended before us that the payment made to Kasturi Nagesh Pai, amounting to Rs. 2,44,760 is not a commission payment and since it is only a trade discount it cannot be allowed in view of the Kerala High Court decision in the case of Quilon Marine Produce Co. A perusal of the order of the ITO shows that the ITO has not disallowed the aforesaid payment as it was not a commission payment as contended by the departmental representative, but it was disallowed by the ITO on the ground that it was paid in India. Further, it is seen from the ITO's order that the ITO has not given any finding that it is a trade discoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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