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TMI Blog2008 (1) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... l/2003 are with regard to the claim for deduction under s. 80HHC of the Act. At the time of hearing, these grounds were not pressed by the learned counsel by the assessee and consequently these grounds are dismissed as not pressed. 4. Ground Nos. 8 to 18 in ITA Nos. 1915 and 1916/Del/2002 and ground Nos. 10 and 11 in ITA No. 2876/Del/2003 relate to the denial of claim for deduction of interest liability claimed by the assessee. The facts and circumstances under which the aforesaid grounds of appeal arise for consideration in all the three assessment years are identical. The assessee is a registered co-operative society under the Multi State Co-operative Societies Act, 1984. It is an apex level co-operative organisation and has several co-operatives as its members. The object of the assessee is to organize, promote and develop marketing, processing and storage of agricultural and forest produce, distribution of agricultural machinery, inter-State and intra-State import and export, wholesale trading and rendering technical advise to is members. In the course of its business the assessee agreed to sell to M/s Alimenta SA, Switzerland 5 MT Indian HPS groundnut kernels Javas 75/80 coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd." 7. The assessee preferred the appeal before the appellate forum against the award of the arbitrators. This appeal was dismissed. Slight modification in the terms of the award of the arbitrators the terms of the award of the appellate authority were as follows: "We hereby award that: Sellers shall pay to buyers within 14 days from the date of this award the sum of US $ 4,526,000 (four million five hundred and twenty-six thousand Untied States Dollars) being the difference between the contract price of US $ 765 per metric tonne plus US $ 15 per metric tonne for double bags and the settlement price of US $ 2,225 plus US $ 15 per metric tonne for double bags as damages with interest thereon @ 11.25 per cent per annum from 13th Feb., 1981 to the date of this award." The award of the appellate authority is dt. 14th Sept., 1990. 8. M/s Alimenta filed an application under s. 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961 before the Hon'ble High Court for a decree in terms of the award of the appellate authority. The application was filed on 8th July, 1993. M/s Alimenta apart from seeking a prayer for a decree in terms of the award as modified by the appellate aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996-97 rejected the plea of the assessee by following his order on similar issue in asst. yr. 1995-96. In asst. yr. 1995-96 the assessee had. made a claim for deduction on account of interest and damages payable to Alimenta. The claim was made in a revised return. The AO rejected such a claim on the ground that the revised return was not filed within time as contemplated in law. This order was followed by the AO in asst. yrs. 1996-97 to 1998-99 also. The CIT(A) confirmed the order of the AO in all the three assessment years. The reasoning adopted by the CIT(A) is primarily that the liability can be claimed only after the decree was passed by Hon'ble Delhi High Court. According to the CIT(A) the liability would accrue to the assessee only after decree of Hon'ble Delhi High Court. In this regard the CIT(A) also observed that as per the award of the appellate authority there was no direction to pay interest after the date of the award. The CIT{A) noticed that the interest claimed in the three assessment years is interest payable after the date of the award. According to CIT(A) the interest payable for the aforesaid three assessment years, crystallised as a liability to the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till the date of such order and, that such interest cannot be assessed to income-tax in one lump sum in the year in which the order is made. The Supreme Court answered the above issue in the affirmative and in favour of the assessee. The learned counsel submitted that on the same principle the interest expenditure in the present case which pertains to the period from the date of the award of the arbitrator (appellate authority) till the date of passing of a decree by the Hon'ble Delhi High Court should be allowed as a deduction in the relevant assessment years to which the interest pertains. Reliance was also placed by the learned counsel on the decision of the Hon'ble Delhi High Court in the case of Fazilka Electric Supply Co. Ltd. vs. CIT (1983) 36 CTR (Del) 355 : (1983) 143 ITR 551 (Del), In the aforesaid decision the dispute was with regard to interest payable on award of an arbitrator where there was an acquisition of electric supply undertaking by the Punjab Government under the Punjab Electricity Supply Act, 1939. The Hon'ble Delhi High Court in the aforesaid decision had laid down that interest payable on acquisition was a liability that arose by virtue of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out by him that after 14th Sept., 1990 there was no liability on the part of the assessee to pay interest as per award of the appellate authority. It is only on 28th Jan., 2000 when the Hon'ble Delhi High Court passed a decree in terms of the award of the arbitrator and also granted interest from the date of the award of the appellate authority till the date of payment that the liability of the assessee for paying interest after 14th Sept., 1990 can be said to have crystallized or become ascertained or accrued. It was submitted by him that the assessee follows a mercantile system of accounting and therefore it is only in January, 2000 after the decree of the Hon'ble Delhi High Court that the liability accrued to the assessee. As on the last date of all the three assessment years involved in these appeals there was no accrual of liability and therefore the assessee cannot claim deduction of the same. It was pointed out by him that the decision in the case of Central India Electric Supply Co. relied upon by the learned counsel for the assessee clearly lays down the proposition that the liability can be said to have accrued or arisen only when an arbitration award is made a rule o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanced compensation as per the provisions of the Land Acquisition Act. Therefore income would accrue every year irrespective of its quantification by the authority acquiring the land and the appellate forums in the Land Acquisition Act. It is under those circumstances that interest was considered as having accrued from year to year and was directed to be taxed year after year from the date of the delivery of possession till the date pf the order awarding enhanced compensation. In the present case as we have already noticed there was no liability to pay interest after the award of the arbitrator (appellate authority) and such liability arose only after the decree of the Hon'ble Delhi High Court. The case of Fazilka Electric Supply Co. Ltd. also stands on the same footing. Interest was payable statutorily from the date of disposition. The case of Kedarnath Jute Mfg. Co. Ltd. is again a decision rendered in the context of statutory liability to sales-tax and therefore cannot apply to the facts of the present case. The law is well-settled that an assessee cannot claim to deduct an item of liability which is not accepted by him, but which, on the contrary is disputed by him. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opar 10.96 3. Rajfed, Jaipur 1.96 4. Hirakapor TCMS Ltd., Bangalore 2.66 5. KSKF Ltd., Bangalore 0.27 6. Rubber Mark, Cochin 3.73 7. Madras Co-op. Spinning Mills, Indore 0.12 8. Srivilli Putor Co-op. Spinning Mill, Indore 0.47 9. IFFCO, New Delhi 0.54 ----- 83.64 ----- The AO computed the proportionate expenses to be deducted while allowing the deduction as follows: Gross Eligible Receipts ----------------------- x Admn. Expenses Total Receipts 83,64,000 ----------------------- x 6,16,97,109 = Rs. 19,19,077 2,68,89,72,930 19. Before the CIT(A) the assessee contended as follows. The Federation has received Rs. 83.64 lacs as interest and dividend from different cooperative societies on the funds provided to them for purchases of goods to be made on behalf of NAFED. The sales of such goods purchased are effected by these societies on account of NAFED partially and the balance is sold by them directly. In respect of funds provided by NAFED to those co-operative societies for purchases and also belated remittance of sales proceeds by those co-operative societies, a charge termed as interest was collected by NAFED. Such transaction is a part and parcel of the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the CIT(A) the assessee did not give any basis of allocation. In the circumstances he submitted that the order of the CIT(A) should be upheld. 22. In our view the matter should be sent back to the AO for a fresh consideration. In our view it would be most appropriate to identify the expenditure connected with the earning of the dividend income and that the same should De deducted in arriving at the net receipts eligible for allowances under s. 80P(2)(d) of the Act. The method adopted by the AO in our view will not be appropriate and will not reflect the nexus between the expenditure and the dividend income. The AO will identify the branch from which these investments were made and will consider the nature of expenses that would probably be incurred in such branch and thereafter apportion the expenditure. 23. In asst. yr. 1998-99, the CIT(A) while deciding this issue upheld the order of the AO for the reasons given by the CIT(A) in asst. yr. 1997-98. We have seen the break-up of the component of interest income in asst. yr. 1998-99 which is placed at page No. 298 of assessee's paper book. The same is as follows: Interest received from co-operative societies Name of the co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of s. 40A(9) were applicable. 26. The learned counsel for the assessee at the outset submitted that the provisions of s. 40A(9) were not applicable to the case. He pointed out that the amount in question was paid to member federation with whom the assessee was carrying on business transactions. Our attention was drawn to cl. 39 of the bye-laws of the assessee which provides for distribution of rebate to members as decided by the board of directors. It was, therefore, submitted by him that it was not a payment by the assessee as an employer. We agree with the above submissions and hold that the provisions of s. 40A(9) are not applicable because the rebate has not been given by the assessee as an employer. 27. With regard to the question whether the rebate allowed could be said to be appropriation of profits and with regard to the question whether there was accrual of this liability during the previous year in question, the learned counsel primarily placed reliance on the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT vs. T.T.D. Co-operative Stores Ltd. (1998) 232 ITR 109 (AP). The Court in the aforesaid decision has held that payment of rebate was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profits. It is more in the nature of commission or incentive and is an allowable deduction while computing income. The rebate allowed to the members goes to increase the purchase price of the assessee and consequently will also reduce its profits. It is only after taking into account such rebate that true profits of the assessee can be arrived at. The fact that the rebate given only at the end of the year is again not decisive. The ascertainment of the rebate will relate back to the date of purchase and the purchase price will stand increased in the trading account. Therefore, even the liability can be said to have accrued to the assessee during the previous year. The rebate relates to the transactions of the previous year and is, therefore, allowable as a deduction. The decision of the Hon'ble Andhra Pradesh High Court in the case of T.T.D. Co-operative Stores Ltd. squarely supports the plea taken by the assessee. We, therefore, hold that the assessee would be entitled to claim the aforesaid sum as a deduction in the relevant previous year relevant to asst. yrs. 1997-98 and 1998-99. The AO is directed to allow relief to the assessee accordingly. 31. The only surviving ground i ..... 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