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TMI Blog2017 (8) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to enhance the rate of royalty to ₹ 230/- per ADMT less discount at the prescribed rates. Besides the assessee therein had not made provision for the liability that may arise or any part of the amount in the previous year relevant to the Assessment Year under consideration. As against that, in the present facts, the Respondent/assessee has not only debited the entire amount of royalty payable according to interim order but has proceeded further and paid that amount also during the previous year relevant to subject Assessment Year 1998- 99. Thus, the decision of this Court in Standard Mills Co. Ltd. (1997 (3) TMI 64 - BOMBAY High Court ) would have no bearing in the context of present facts. - Decided in favour of assessee. Addition on account of interest free loan given to Andhra Pradesh Rayon Ltd - commercial expediency - Held that:- This charging of interest on advance made to M/s. Andhra Pradesh Rayons Ltd. would clearly be covered by the decision of the Apex Court in S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals) and another, (2006 (12) TMI 82 - SUPREME COURT ) wherein held that once it is established that there was nexus between the expenditure and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the Bamboo exploited under the 1947 agreement amounting to ₹ 73,56,144/-. The Assessing Officer also found that a sum of ₹ 8,55,85,000/- was outstanding against Andhra Pradesh Rayons Limited. The Assessing Officer held that interest was chargeable on the outstanding sum in view of the decision of the Supreme Court in the case of Travancore State Bank of India and since no interest was charged brought to tax the amount of interest at ₹ 1,10,81,900/- as assessee's taxable income. The Assessing Officer also found that the assessee was to receive an amount of ₹ 3,09,719/- as gross receipts in respect of technical and management services fees from the foreign partners. The Assessing Officer following the orders of earlier years brought to tax the entire sum as it was being taxed on accrual basis in the case of the assessee company. 3. Aggrieved with the order of Assessing Officer, the assessee preferred an appeal before the CIT (A). The C.I.T. (A) relying on its order for the assessment year 1987-88, on the question of Bamboo royalty observed that the Assessing Officer is directed to restrict the disallowance to the extent indicated in ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical question proposed in R.A. No.14/Nag/1994. He further contended that the similar question has already been decided by the jurisdictional High Court in favour of the assessee in the case of CIT vs. Ambalal Kilachand, 210 ITR 844 and it will be of academic nature only to refer the said question. Regarding question No.3, he contended that similar question has been referred by the Tribunal in R.A. Nos. 10 to 14/Nag/94 vide its statement of the case dated 7-7-94 referred to above. 7. We have considered the submissions of the parties and have gone through the entire material placed before us including the order of the ITAT and the decision of the jurisdictional High Court. Regarding the question No.2, the jurisdictional High Court in 210 ITR 844 has decided the similar question in favour of the assessee and, therefore, it will be of academic nature to refer the said question, as the answer to the said question is selfevident. Therefore, this question is not being referred to the High Court. Regarding the question Nos.1 and 3, it is evident that identical questions were referred earlier by the Tribunal vide its statement of the case dated 7-7-1994 in R.A. Nos. 10 to 14/Nag/94. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive candidates every year nominated by the Provincial Government in the techniques of paper manufacturing. 3) The Governor as per para 6(i) of the 1947 agreement granted to the assessee for a period of 40 years a license to cut and remove bamboos growing in the Govt. Forests in the said district on payment of a royalty at the rate of ₹ 5 and 4 annas per tonne of Airdry bamboos containing not more than 10 % of moisture. Later on this rate was revised to ₹ 15 P.M.T. as per agreement between the two parties. The Government undertook to supply electricity and also agreed to compensate the assessee in case sufficient quantity of wood could not be secured from the Forest. It is notable that there was no escalation clause in the said agreement. 4) On the formation of the State of Maharashtra with effect from 1-11-1960 the District of Chandrapur became a part of the State of Maharashtra. On 10th of Dec. 1968 another agreement was made superseding the earlier agreement dated 31-7-1947 between the then C.P. Berar State and the assessee Company. As per this agreement the Government agreed to grant the assessee a further license to cut and remove bamboos from the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement. As a special case, however, a discount of ₹ 30/- per ADMT of bamboo would be given to you, for the first year, i.e. the working season 1982-83 and a discount of ₹ 15/- per ADMT would be given for the 2nd and 3rd years, i.e. the 1983- 84 and 1984-85 working seasons. As per para 3 of the said letter an offer was made that if the assessee agreed to the rate fixed under 1968 agreement being made applicable to the supply under 1947 agreement as a permanent agreement with effect from 1-10-1982 the Government of Maharashtra was agreeable to fix the rate of royalty for both the agreements at ₹ 200/- per ADMT from 1-10-82 to 30-9- 87. The Government also agreed to give some further discount as mentioned in para 2 of their letter. As per para 4 of the said letter it was provided that if the assessee was not agreeable to the said arrangement, the royalty under 1968 agreement would be fixed as indicated in paragraph 2 of the said letter. The State Government further by their letter dated 20th June, 1983 informed the assessee that instructions have been issued to the concerned Officers to recover royalty for all the bamboos supplied to you under the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n clause 6(i) of the said Agreement ; And it is hereby further ordered that the revised rate of royalty of ₹ 230/- per metric tonne of Air-dry bamboos shall not be enforced during the pendency of the writ petition No.2054 of 1983, as per the aforesaid order of the High Court. Later on, on 5-7-91 a Memorandum of Understanding was arrived at between the State of Maharashtra and the assessee under which the following rates were agreed : Supply Year Rate/MT 1982-83 170 1983-84 185 1984-85 185 1985-86 200 1986-87 200 1987-88 220 1988-89 242 1989-90 267 1990-91 293 (b). From the above facts, it is clear that the royalty payable under the 1947 agreement for license to cut and remove bamboos was at ₹ 5/- per Air dry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and irrevocable. The challenge made in the Writ Petition pertained to the realm of quantification of the liability and not to the right of the Government to revise the rates of royalty. Thus, the claim of the Respondent-Assessee at ₹ 115/- per ADMT under both the 1947 and 1968 Agreement was allowed with a deduction. (f). Mr.Bhattad, learned Counsel for the Revenue challenges the reasoning of the Tribunal by pointing out that liability to pay at ₹ 115/- per metric ton continues to be a contingent liability subject to the Writ Petition being decided. According to him, the fact that payment of royalty at ₹ 115/- per ADMT is made by the Respondent/Revenue to the State Government would not change the character of liability from being a contingent liability. Thus, he submits the expenditure should have been allowed only at the rates of ₹ 15/- per ADMT and ₹ 60/- per ADMT under the 1947 and 1968 Agreement respectively. Any payment in excess of the above would be contingent upon the decision of the Court in the pending Writ Petition. In support, reliance is placed under the decision of this Court in Standard Mills Co. Ltd. vs. CIT 229 ITR 366. (g) Mr.De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year the assessee had claimed a large amount of deduction by way of business expenditure the difference of the amount wrongly claimed and allowed in earlier relevant assessment year could always be added back in the assessment of the relevant subsequent assessment year. It is obvious that in no case, the assessee who was following mercantile system of accounting could have claimed deduction for payment of central sales-tax dues for asst. yr. 1962-63 in the asst. yr. 1971-72. In fact, the Apex Court in Kedarnath Jute Manufacturing Co. Ltd. (supra) has laid down the text to ascertain whether the amount is a debt by holding that a liability depending upon a contingency is not a debt in presenti or in futuro till the contingency happened. But if there is a debt, the fact that the amount is to be ascertained does not make it any less a debt if the liability is certain and what remains is only quantification Applying the above text, the amount @ ₹ 115/- per ADMT is a debt. (i). The aforesaid observations of the Apex Court would apply to the facts of the present case. Reliance by the Revenue on Standard Mills Ltd. (supra) is inappropriate as the facts in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted to charge interest on the initially committed amount of ₹ 185 lacs (advanced in a phase manner) until the company would turn the corner and start paying dividend. Since the recovery of the loan itself would be at stake if the project would fall through, assessee had agreed to forego interest on loans so that company to the extent of ₹ 185 lacs out of which ₹ 90 lacs was already advanced till 30.6.1981. This was a contractual obligation agreed upon on the ground of commercial expediency. (c) This charging of interest on advance made to M/s. Andhra Pradesh Rayons Ltd. would clearly be covered by the decision of the Apex Court in S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals) and another, (2007) 288 ITR 00001 (supra). In that case, the Apex Court had observed, while agreeing with the view of the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188, that once it is established that there was nexus between the expenditure and the purpose of business (which need not necessarily be the business of the Assessee itself) then the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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