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TMI Blog2013 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... liability was ascertained and, therefore, the Tribunal had rightly held that the claim of interest relating to the previous assessment years is not admissible for deduction during the assessment year in question. - Decided in favor of revenue. - Income Tax Reference No. - 68 of 1989 - - - Dated:- 10-1-2013 - R.K. Agrawal And Prakash Krishna,JJ. Petitioner Counsel :- V. Gulati Respondent Counsel :- B.Agarwal,A. Kumar,A.N. Mahajan,D. Awasthi,G. Krishna,S. Chopra ORDER The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad has referred the following question of law under Section 256(2) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for opinion to this Court. "Whether on the facts and in the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only had been charged. However, this plea was not accepted by the State Government. As the applicant had not accepted the condition regarding payment of interest it had not made any provision of interest on the aforesaid loan of Rs.10,00,000/- even though the system of accounting followed by the assessee was mercantile. During the previous year relevant to the assessment year in question it claimed deduction of the entire amount of interest payable on the aforesaid amount of loan of Rs.10,00,000/- on the ground that as the liability for payment of interest was highly disputed, it had not made any provision for payment of interest in the preceding assessment years and, therefore, the entire amount is liable to be deducted during the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only arithmetical quantification remains to be made, it cannot be said that the liability is not ascertained. The mercantile system can also not be stretched to embrace provisional, notional or contingent payments which the assessee considers that he might ultimately be called upon to pay. Since the liability in the present case was not the subject matter of an award of litigation, the decisions which have a bearing on award and litigation will not help us. In the letter dated 6.7.72 by which the loan of Rs.10,00,000/- was given to the assessee a clear stipulation was made that interest was payable at the rate of 10.5% per annum and that in the event of timely payment of the principal and interest instalments, interest would be charged onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment to the assessee stated that although the Finance Department had no objection to the proposal for exemption of interest for the first two years they were reluctant to reduce the rate of interest thereafter as the rate of interest had been worked out uniformly for all the Government Departments after studying various factors. It was also pointed out that the Finance Department had stated that they could consider treating these loans as equity for the assessee or granting of interest subsidy to the extent of 4%. By means of another letter dated 3.9.77 the Government asked for a report regarding the profits and losses incurred by the nine units whom the said loan of Rs.10,00,000/- had been given. By means of a D.O. Dated 8.12.77, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.10,00,000/- to it on the ground that it was a welfare activity of the State Government for establishing Small Scale Industries in the backward areas, the loan should be interest free loan and the interest in the previous year relevant to the assessment year in question. The State Cabinet had decided the matter finally holding that the amount of interest was ascertained at the rate of 8% per annum is payable, therefore, it was unascertained liability earlier which became ascertained during the previous year relevant to the assessment year in question and ought to have been allowed during the relevant assessment year. In support of his plea, he has placed reliance upon the following two decisions: 1.Commissioner of Income-tax, Madhya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing mercantile system of accounting and, therefore, the liability for payment of interest for all the previous assessment years cannot be claimed or allowed in the relevant assessment year. In the case of Swadeshi Cotton and Flour Mills Pvt. Ltd.(supra), the Hon'ble Supreme Court was considering the case relating to the claim of profit bonus payable by the assessee therein to its employees debiting the amount in its profit and loss account for the year 1948 but in fact paid it to the employees in the calendar year 1949. The Hon'ble Supreme Court has held that an employer who follows the mercantile system of accounting incurs a liability towards profit bonus only when the claim, if made, is settled amicable or by industrial adjudication ..... X X X X Extracts X X X X X X X X Extracts X X X X
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