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TMI Blog2011 (8) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... For Respondent : Mr. Abhishek Maratha, Sr. Standing Counsel for the respondent with Ms Teena Sharma, Advocate. A.K.SIKRI, J. (Oral) 1. Admit. Following substantial question of law arises for consideration: Whether on facts and circumstances of the case, the Ld. Tribunal was justified in holding that a liability otherwise accrued and deductable under the Act becomes a contingent liability only because a consent of the Board or the Appellate Authority is required for its recovery under the provisions of Section 22 and Section 22-A of the Sick Industrial Companies (Special Provisions) Act, 1985? 2. We have also heard the arguments of counsel for both the parties finally and proceed to decide the above said question. 3. The appellant/assessee is engaged in the business of manufacture of material handling equipments like Belt Conveyer, Chain Conveyers, Idlers, Pulleys etc. This company was incorporated in the year 1943. However, sometime in the early nineties the assessee ran in the rough weather and its financial network eroded. Under these circumstances as per the Provisions of Sick Industrial Companies (Special Provisions) Act, 1985, it approached The Board for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al against the order of the CIT (A) before the ITAT which was also dismissed vide orders dated 12.09.2008. However, on further appeal preferred by the department to this Court, orders dated 16.04.2010 were passed thereby remanding back the matter to ITAT on the question whether the liability was a contingent liability in view of the fact that prior permission of AAIFR/BIFR was required for the recovery of money, was obtained or not. The matter was heard afresh by the Tribunal which has culminated into orders dated 21.05.2010. By the impugned order the Tribunal has set aside the order of the CIT (A) thereby allowing the appeal of the Department and holding that the liability was contingent liability and therefore it had not accrued. It is in these circumstances that the assessee has approached this court by way of the present appeal preferred under Section 260A of the Act giving rise to the aforesaid substantial question of law. 7. Perusal of the impugned order of the Tribunal would reveal that the Tribunal has accepted the fact that once the award was made rule of the Court and decree was passed consequent thereto, the liability arose on 10.10.2002. It is also not in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, it mandates that against such a company in respect of which inquiry under Section 16 is pending, or scheme under Section 17 is under preparation or consideration or sanction or the proceedings are in appeal i.e. before the AAIFR, no suit for recovery of money or for enforcement of claim against such company in respect of any loan or advance granted to the company shall lie or proceeded with except with the consent of the Board/AAIFR/BIFR, as the case may be. By the very nature of this provision, the only embargo put against the creditors is that the creditors are not entitled to file a suit or proceed with the suit and to enforce the claim. Whether this provision would make the liability a contingent liability is the question. Answer is to be in negative. 10. As pointed out above, the assessee is maintaining mercantile system of accounting. It is also not in dispute and recognized by the Tribunal itself that once an award is passed and made rule of the Court, liability accrues. Therefore, under the normal circumstances it is but natural that liability had accrued against the assessee on 10.10.2002 when decree was passed in terms of the award. Only because the credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presenti, solvendum in futuro". As already noticed, in the present case, the restriction under section 9 of the FERA was only on the payment abroad, for which permission was required to be obtained from the RBI. Therefore, what was deferred was the discharge of the liability and not the accrual of the liability. At this stage, we may usefully refer to the observations of their Lordships of the Supreme Court in Coca Cola Export Corpn. v. ITO [1998-231-ITR-0200-SC) to the effect that the FERA contains stringent provisions for conservation of foreign exchange reserves of the country and for that purpose regulates certain payments and dealings in foreign exchange, etc., but the embargo placed in these provisions regarding remittances to be made abroad has nothing to do with the amount of disallowance under the Act. 16. In our opinion, Therefore, since the liability of the assessed to pay commission to the lady accrued under agreement dated 5-5-1970 and the assessed was maintaining its account on mercantile system of accounting, it was entitled to deduct such liability which had accrued during the period for which profits and gains were being computed and, Therefore, the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the approval of the RBI and under the provisions of Foreign Exchange Regulation Act (FERA). The Court held that the provisions of FERA had nothing to do with accrual of liability which arose in terms of the contract in dependent of FERA provisions the fact that before actual payment is made permission of RBI is to be obtained does not make the enforceability of liability subject to it. This principle is explained in the following words: 5. We may usefully refer to ratio in case of Mrs. Chandnee Widya Vati Maddan vs. Dr. Col. Katial Ors., AIR 1964 SC 978 which draws distinction between a contingent contract and a completed contract in order to appreciate distinction between a contingent liability and the liability which is crystalised. It was a case in which parties had entered into agreement to sell certain property. The law required the vendor to seek necessary permission to such transfer. The suit for specific performance of such agreement was sought to be the defended on the ground that the contract was contingent as its performance was dependent on permission to be granted by Collector. As to the obligation of the parties to the contract, the Court said : "That the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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