9911796707
TMI Blog2007 (3) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... was of the view that the claim was merely a provision on account of a contingent liability and not on account of an ascertained liability. The assessee submitted a written reply dated September 16, 1999, where the details of the provisions were given as under : Name of the client Provision made Chemical and Plastics India Ltd. 27,525 Cochin Refineries 10,00,000 Kanoria Chemicals Ltd. 13,62,000 Madras Fertilisers Ltd. 16,83,855 4. It was further submitted by the assessee before the Assessing Officer that in all the above cases, commissioning of the boilers was delayed beyond the contractual dates and, therefore, the company was liable to pay liquidated damages, a provision thereof has been taken into account by the assessee. A further submission before the Assessing Officer was made on February 28, 2000, which has been reproduced by the Assessing Officer in his order as under : " First and foremost in compliance with the statutory provisions contained in sub-section (3)(b) of section 209 of the Companies Act, 1956, the accounts of the company are maintained on the accrual basis of accounting. Accordingly, and strictly in terms of the relevant cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of boilers and supply thereof to four parties as follows : 1. Kanoria Chemical and Industries Ltd. 13,62,000 2. Madras Fertilisers Ltd. 16,83,835 3. Chemplast Ltd. 27,725 4. Cochin Refineries 10,00,000 Total 40,73,560 Although the provision required to be made as computed exactly in terms of the clause pertaining to liquidated damages in the contract with each of the aforesaid parties (copies of relevant clauses annexed hereto) would have been much higher the company made a reason able estimate in each case of the abatement from the amount of such liquidated damages which would be obtained through negotiations and determined the amount of the provision to be made after such deduction. While it would indeed be inappropriate in the context of the mercantile method of accounting followed by the company we shall all the same provide you with an insight into the subsequent settlement which is as under : 1. In respect of Kanoria Chemicals and Industries Ltd., liquidated damages were finally levied in the amount of Rs. 40,00,000, which of course included provision for liquidated damages made in other years. 2. With reference to Madras Fertilisers Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. It also provides for the maximum amount that the company is liable to pay by way of liquidated damages. This clause is legally enforceable. However, based on an appraisal of all facts technical and non technical, the company attempts to extract a waiver reduction in the amount of liquidated damages. This process of waiver could take a long time and usually coincides with completion of the project when the buyer, after taking into account various factors, including the overall performance of the company during project execution, either agrees to waiver or to reduce the amount of penalty or rejects its claim together. This exercise of reduction of waiver takes into account not only the subject project but could also take into account the likely foreseable relations which the two parties envisage for themselves. . . . . We have not received any debit note on account of liquidated damages during the year though as mentioned above, the buyer would have withheld moneys which were otherwise rightfully due in terms of the contract and as such it could be said that the buyer has appropriated such moneys towards the amount of liquidated damages due as per terms of the contract whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the agreement. The invoices floated by the appellant clearly are towards sales executed (may be in part). The appellant pays sales tax and excise duty thereof and debits such taxes and duties in his books of account treating the amount of invoice as sales. At this stage itself, the right to receive the money accrues to the appellant and the liability to pay fastens on to its customers. The factor of actual settlement of the remaining consideration, inclusive of liquidated damages at a later date cannot alter the nature and time of the right to receive the money that vested in the appellant." Pages 16 and 17 : " In this case, the customers of the appellant acknowledge constructively the debt they owe to the appellant when the invoices floated by the appellant are accepted as per the agreement between them. The claim if any against the appellant for delay in installation of the system provided by appellant, is purely and wholly dependent upon contingency of further negotiations and mutual acceptance of the final amount of liquidated damages. Such contingency has not arisen during the relevant accounting year as admitted before the Assessing Officer and also during the appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceive the amounts mentioned in the invoice issued. At this stage, neither the customer forfeits or has any right to forfeit any amount nor has the appellant foregone claim of any such amount called liquidated damages. At this stage, therefore, the entire amount billed to the customers turnover of the appellant and is rightly taken by the appellant to the sales account. The so-called liability of liquidated damages is nothing but contingent liability. The entire amount of Rs. 70,43,560 is nothing but contingent liability as the appellant has not accepted such liability till closure of the books of account for the relevant accounting year. The addition is therefore warranted and is confirmed. The appeal fails on this ground." 9. Still aggrieved, the assessee has preferred this appeal before us. 10. The learned authorised representative appearing for the assessee has reiterated the submissions and contentions as were made before the Assessing Officer as well as before the Commissioner of Income-tax (Appeals). In this respect, he invited our attention to the copy of letter dated January 28, 2000, addressed to the Assessing Officer in respect of the liquidated damages along with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e system of accounting followed by the assessee as per the Accounting Standard 7 is taken into account, the assessee has not been able to prove as to whether the receipt of contract work giving rise to the claim of liquidity damages has at all been offered for taxation by the assessee in this year. 12. The learned Commissioner of Income-tax-Departmental representative also submitted that in the case of an assessee following the mercantile system of accounting, a liability can be said to have actually incurred only when the dispute between the parties is amicably settled or finally adjudicated in the case where the liability in question is not a statutory liability. He further submitted that as per the Contract Act, liquidated damages accrue only when the liability is adjudicated upon. In this connection, he has made a reference to page 678 of the Commentary on Indian Contract and Specific Relief Act by Mr. J. L. Kapur (10th edition). Following decisions were also pressed into service in support of the Revenue' s case : (1) CIT v. Ashwin Vanaspati Industrial P. Ltd. [2006] 283 ITR 439 (Guj) ; (2) CIT v. Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134 (SC) ; (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 1265 and have further observed that the court while interpreting the similar term of the contract has observed that it gives wider power to Union of India (customer) to recover the amount claimed by appropriating any sum then due (Kindly refer to page 24 paragraph 51 highlighted portion of photocopy enclosed). The hon'ble Supreme Court has at paragraph 67(2) page 29 of the photocopy enclosed observed that ' If the terms (of contract with customer) are clear and unambiguous stipulating the liquidated damages in case of breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has com mitted the breach is required to pay such compensation and that is what is provided in section 73 of the Contract Act' . Thereafter the hon'ble Supreme Court has in the concluding paragraph at paragraph 72B(1) page 31 of the photocopy enclosed laid down the criteria adopted in allowing the appeal for recovery of liquidated damages [kindly refer page 31 of the photocopy enclosed highlighted portion paragraph 72B(1)]. It is submitted that the terms and conditions of the contract entered into by the appellant with its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the authorities below. We have carefully perused various papers placed in the paper book filed by the assessee. The various decisions cited at the bar were also deliberated upon. 15. In this case, the assessee had entered into a contract for manufacture of boilers and supply thereof to the following four parties : 1. Kanoria Chemical and Industries Ltd. 2. Madras Fertilisers Ltd. 3. Chemplast Ltd. 4. Cochin Refineries 16. In all the work agreements entered into by the assessee, with the aforesaid customers, there exists a clause to pay liquidated damages of the amount specified in the agreements itself, for delay in commissioning the work. As far as the delay attributable to the assessee is concerned, the assessee has accepted the same and has not raised any disputes or objection as to its liability to pay damages for the delay on its part in executing the work. In the light of these facts, the assessee, therefore, made a provision for the liability on account of damages payable for causing delay by it in erecting and commissioning the work, to the following extent : Name of the client Provision made Chemplast Ltd. 27,525 Cochin Refineries 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business and was incidental to the business and having regard to the accepted commercial practice and trading principles, was a deduction which, if there was no specific provision for it under section 10(2) of the Income-tax Act, was certainly an allowable deduction, in arriving at the profits and gains of the business of the appellant, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression ' profits or gains' in section 10(1) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted there from-whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date." 19. In this case, the assessee was a dealer in the landed property and carried on land developing business. During the course of business it bought land, developed it to make it fit for building purposes and sold it at a profit in plots. On sale of plot, the assessee received 25 per cent. of the purchase pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents being not determinable with exactitude before hand. A few principles were laid down by the hon'ble Supreme Court, in this case which are extracted and reproduced as under : " (i) For an assessee maintaining his accounts on the mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid ; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business ; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability ; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability ; (iv) a trader computing his taxable profits for a particular year may properly deduct not only the payment actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated." 23. On the issue as to whether the provision for warranty liability is deductible for income-tax purposes, a useful reference may be made to a decision of the hon'ble Kerala High Court in the case of CIT v. Indian Transformers Ltd. [2004] 270 ITR 259, where the hon'ble Kerala High Court found that the provision for after sales services of transformers on the facts of that case was a reasonable one in view of the actual expenses, which materialized in a latter year, so that it was also allowable, following the decision of the hon'ble Supreme Court in the case of Bharat Earth Movers [2000] 245 ITR 428 which, however, related to a case of leave encashment but the rational of the hon'ble Supreme Court decision in the case of Bharat Earth Movers [2000] 245 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated liabilities. All vehicles which leave the taxpayer' s assembly plant at Porirua have been tested and examined for defects. So far as the taxpayer is aware, there is nothing wrong with them. Nevertheless, experience shows that in many cases, a defect will be discovered during the warranty period. Often it is no more than a blemish in the paintwork. Some times it is more serious. Sixty three per cent. of the vehicles sold by the taxpayer in the year 1988 were returned to the dealers for some kind of work to be done under the warranty. Although it cannot of course be predicted whether any particular vehicle, will turn out to be defective or how serious the defect will be, the taxpayer can make a reasonably accurate forecast, based on previous experience, of what will be the total cost of remedial work for all the vehicles sold in a given year. Normal commercial practice therefore requires that this amount should be brought into account as a deduction from income in estimating the profits or gains of the business in the year in which the vehicles were sold." 26. The aforesaid decision of the Privy Council in the case of Mitsubishi Motors New Zealand Ltd. [1996] 222 ITR 697 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent liability is to be understood as one, which is not only dependent on the happening of a future event but is also incapable of ascertainment or even estimation with a fair degree of precision. In contrast, a liability whose happening and valuation is possible to be made with reasonable certainty and would arise continually so as to be coterminus with the carrying on of the business of the assessee, cannot be construed as a contingent liability. It was further emphasized by the court that as the assessee was in the year of sale under an accrued legal obligation to make payment under the warranty clause and, even though it might not be required to do so until the following year, it was definitely committed in the year of sale to that expenditure, and that, accordingly, in computing the profits or gains derived by the assessee from its business in the year in which the goods were sold, the assessee was entitled to deduct from its profit the provision which it had made for the costs of its anticipated liabilities under outstanding warranties in respect of the goods sold in that year, the quantification thereof being based on statistical information. It was further held there that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... future date, on which the liability shall have to be discharged, is not certain. It is also clear that a condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that definite liability into a contingent one. However, an answer to the question as to whether the liability, in respect of which a deduction is claimed by the taxpayer, has definitely arisen, under a definite obligation of a trader, in any accounting year, depends on the facts of each and every case. 29. In the case before us, we are concerned with regard to the assessee' s liability arising from the stipulations appearing in the sale agreement made with its customers, as to the payment of liquidated damages in case the work entrusted upon to the assessee is not commissioned or erected within the stipulated time. 30. On perusal of the orders of the authorities below and having regard to the submissions advanced by both the parties, there is no dispute as to the fact that there exists a stipulation in the contract agreement entered into by the assessee with its customers that liquidated damages would be paid by either part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontingency has not arisen during the relevant accounting year, as admitted before the Assessing Officer as well as during the appellate proceedings, the assessee' s claim is not allowable. It was further observed by the Commissioner of Income-tax (Appeals) that when the customers of the assessee find, after commissioning or completing or erection of the system or plant and machinery, as the case may be, that the clause relating to liquidated damages is to be invoked as the performance of the assessee-company was not completed within the agreed time frame, the customer may foreclose the bank guarantee or the bond issued by the assessee-company representing the amount of performance warranty or liquidated damages, whatever the name may be, and which may or may not be accepted by the assessee. He further stated that when the issue is finally decided that the assessee is to bear the cost of its performance inadequacies or after the assessee' s admission to that effect, such amount would become for the first time, due from the assessee to its customers, and only at such time the liability to pay such liquidated damages would arise and not any time before. 33. Having regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale. The very undertaking given by the assessee to carry out the development work within six months from the dates of deeds of sale has imported a liability on the assessee which accrued on the dates of the deeds of sale, though that liability was to be discharged at a future date. In this case, the hon'ble Supreme Court has also pointed out that the taxable income is not on gross receipts, but on profits and gains of the business. The profits should be understood in its natural and proper sense, in a sense which no commercial man would misunderstand. It has to be real profits. It was for this reason that a deduction of a provision in respect of the liability the assessee had undertaken by way of providing amenities or development work within six months from the date of deed of sale was allowed as a deduction. Applying the same analogy to the present case, we find that the assessee has imported a liability on itself to pay liquidated damages for the delay in completing the work within the specified time, and as such, the estimated expenditure which would be incurred towards liquidated damages would be deductible from the receipts of the year. This certain act or event of not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated with reference to statistical information would be a charge on the profit arising from the sale of the goods in respect of which warranty was given and, thus, have to be allowed as deduction. On the issue of claim of deduction on account of warranty in respect of the goods sold in a particular year, a reference was also made to the decision of the Privy Council in the case of IRC v. Mitsubishi Motors New Zealand Ltd. [1996] 222 ITR 697 by the hon'ble Delhi High Court in the case of CIT v. Vinitec Corporation P. Ltd. [2005] 278 ITR 337. The hon'ble Delhi High Court as well as the hon'ble Kerala High Court in the aforesaid two cases have taken note of the principles laid down by the hon'ble Supreme Court in the cases of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 and Bharat Earth Movers v. CIT [2000] 245 ITR 428. Therefore, applying the same analogy as applied in the case of warranty by the hon'ble Kerala High Court, the Delhi High Court and the Privy Council in the cases of (i) CIT v. Indian Transformers Ltd. [2004] 270 ITR 259, (ii) CIT v. Vinitec Corporation P. Ltd. [2005] 278 ITR 337 and (iii)IRC v. Mitsubishi Motors New Zealand Ltd. [1996] 222 ITR 697 respectively, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one party, a liability can be said to have actually and definitely incurred only when the dispute between the parties is amicably settled or finally adjudicated in case where the liability in question is in the nature of contractual liability and not a statutory liability. In order to apply this proposition, one has to prove first that there was a dispute and difference between the parties as to the importing liability on one party or the other itself. Ascertainment of liability by way of amicable settlement or by a judicial process would arise only in cases where the conflicting stands are taken by the parties as to their respective rights and obligation as to the terms of the contract. Where no dispute has been raised as to the assessee' s liability to pay liquidated damages for delay in executing the contract work, the provision for liability may be claimed in the year to which the transaction relates, provided it can be fairly ascertained or estimated on agreed and admitted terms of the contract. The three decisions of the hon'ble Supreme Court in Calcutta Co. Ltd. [1959] 37 ITR 1, Bharat Earth Movers [2000] 245 ITR 428 and Metal Box Company of India Ltd. [1969] 73 ITR 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kaveri Engineering Industries Ltd. v. Deputy CIT [1992] 43 ITD 527, where the facts were summed up as under (page 541) : " (a) the assessee, in some instances, did delay the delivery of the goods which it had contracted to supply. The assessee did not deny the said factum of delay. (b) As a direct consequence of its failure to stick to the stipulated delivery schedule, the assessee rendered itself liable to penal pecuniary consequences stipulated in the delayed delivery clauses. The assessee did not dispute the factum also. (c) It should, therefore, follow that, as respects the liquidated damages stipulated in the delayed delivery clauses, the assessee incurred a liability in praesenti with the customers simultaneously getting a right to receive the stipulated amount. (d) The fact that the assessee approached its customers with a plea of waiver does not alter the aforesaid position. This is because the acceptance of the assessee' s plea was contingent upon the customers\q good sense, their pleasure. In other words, the mere fact that the assessee had made a plea for waiver or even the further fact that in some instances the customers had accepted the plea, wholly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of liquidated damages for delay caused by the assessee in erecting or commissioning the work accepted by the assessee to do is in-built in the contract agreement itself, and it has arisen on the happening of the delay in executing the contract works and its valuation is possible to be made with reasonable certainty and since the corresponding sales revenue of the said contract works has been accounted for in the given period, this liability arising on account of liquidated damages for delay caused in erecting or commissioning the work cannot be viewed that it is contingent in nature. The view taken by the Assessing Officer as well as by the Commissioner of Income-tax (Appeals) that there is no certainty on the quantum of provision made by the assessee in its books of account and, as such, the liability is to be treated as of contingent in nature cannot be accepted, inasmuch as the hon'ble apex court in the cases of Calcutta Co. Ltd. [1959] 37 ITR 1 and in Metal Box Company of India Ltd. [1969] 73 ITR 53, which has been followed in a later decision of Bharat Earth Movers [2000] 245 ITR 428 (SC), has categorically laid down a law that what should be certain is the incurring of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, AIR 1974 SC 1265 ; [1973] 3 SCR 556 ; [1974] 2 SCC 231. 42. In a reply to the departmental aforesaid contention, learned counsel for the assessee has drawn our attention to the decision of the hon'ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. [2003] 5 SCC 705 Civil Appeal No 7419 of 2001. In this latter decision of the hon'ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. [2003] 5 SCC 705, the hon'ble Supreme Court has made a reference to its decision in the case of Raman Iron Foundry, AIR 1974 SC 1265, at paragraph 51 of the order, and has observed that in the case of Raman Iron Foundry, AIR 1974 SC 1265, the court has not referred to the earlier decision rendered by five judge Bench in Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405 ; [1964] 1 SCR 515, 526 or the decision rendered by three-judge Bench in Maula Bux v. Union of India [1969] 2 SCC 554. It was further observed by the hon'ble Supreme Court that further in H. M. Kamaluddin Ansari and Co. v. Union of India [1983] 4 SCC 417 (MANU/ SC/0002/1983), the three judge Bench of the hon'ble Supreme Court has overruled the decision in Raman Iron Foundry' s case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine pre-estimate of damages ; (iv) on the request of the respondent to extend the time limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered ; (v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor ; (vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable ; (vii) in certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care by sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract." 44. In the light of the aforesaid discussion, the contention of the learned Commissioner of Income-tax-Departmental representative that the assessee' s liability to pay liquidated damages for causing delay in erecting or commissioning work can be said to have actually incurred only when the dispute between the party is amicably settled or finally adjudicated, is devoid of any merit. 45. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the hon'ble Supreme Court in the case of CIT v. Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134, which was also rendered in the background of the fact that there was a dispute as to the payment of bonus to the employees and, thus it was held that since the dispute was settled by the award of the Industrial Tribunal in the year of 1949, deduction of the payment of bonus had to be given in the calendar year 1949 only. 50. In the case of CIT v. Ratlam Strawboard P. Ltd. [1985] 152 ITR 425 (MP), the claim of damages for not supplying the goods within a stipulated time was disputed by the assessee, and the matter was referred to an arbitrator and, in this background, it was so held that the liability on account of damages payable to the assessee' s customer would be allowed in the year when the claim is finally settled. 51. In the case of CIT v. Phalton Sugar Works Ltd. [1986] 162 ITR 622 (Bom), the hon'ble High Court has held that where a liability arising out of contractual obligation is disputed, the assessee is entitled, in the assessment year relevant to the previous year in which the dispute is finally adjudicated upon or settled, to claim a deduction in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit from the said contract works, of the year under appeal, though that liability was to be discharged at a future date. 54. The view we have taken above is further strengthened and supported by the logic or the reasoning that is being applied in holding that the monies retained by the contractee from the bills raised by the contractor till the obligation of satisfactory completion of the contract work is fulfilled would not amount to income of the contractor of the year in which the amount is retained. 55. On the issue relating to the question as to when the contractor has acquired a right to receive the retention money deducted by the contractee from its bill raised for executing the contract works till the contract work has been satisfactorily completed, a reference may be made to a leading decision rendered by the hon'ble Calcutta High Court in the case of CIT v. Simplex Concrete Piles (India) P. Ltd. [1989] 179 ITR 8. In this case, the assessee, a contractor, carried on the business of concrete piling for building. The assessee credited only 90 per cent. of the contract value as income in the accounts by deducting the retention money retained by the contractee, which resulte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o had no right to enforce payment, it could not be said that the right to receive payment of the remaining 10 per cent. of the value of job had accrued. 57. A similar view has also been taken by the hon'ble Madras High Court in the case of CIT v. Ignifluid Boilers (I.) Ltd. [2006] 283 ITR 295. 58. The aforesaid decisions of the hon'ble Calcutta High Court and the hon'ble Madras High Court has been followed by the hon'ble jurisdictional Bombay High Court in the case of CIT v. Associated Cables P. Ltd. [2006] 286 ITR 596, where it has been held that the payment of retention money in the case of contract is contingent on satisfactory completion of contract work and the right to receive the retention money accrues only after the obligations under the contract are fulfilled and, therefore, it would not amount to income of the assessee in the year in which the amount is retained. In this decision of the hon'ble Bombay High Court, a reference has also been made to a judgment of the Tribunal in Associated Cables P. Ltd. v. Deputy CIT [1994] 206 ITR (AT) 48 (Bom). 59. From these decisions, it is, thus, clear that the right to receive the whole money on account of the contract work execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay a liquidated damages at the rate of 0.5 per cent. of the contract value of the boiler per day of delay or part thereof subject to a maximum of 15 per cent. of the contract value of that boiler. It is also provided therein that all sums payable by way of liquidated damages under any of the conditions shall be considered as reasonable compensation without reference to the actual loss or damage which shall have been sustained. 62. In the contract agreement entered into with Kanoria Chemicals and Industries Ltd., the clause of liquidated damages states that in the case of delay in commissioning of the complete equipment beyond October 25, 1995, liquidated damages at the rate of 1 per cent. (one per cent.) per week subject to a maximum of 10 per cent. of ex-works price shall be applicable. 63. In the case of Madras Fertilizers Ltd., liquidated damages are leviable at the rate of 0.5 per cent. per week or part thereof, subject to a maximum of 5 per cent. of the total value of the contract, if the boiler parts of 110 Ata boiler package is not delivered by the end of 18th month. 64. In the case of Chemical and Plastics India Ltd., the provision has been made only of Rs. 27,525, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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