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TMI Blog1988 (5) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... he company were protected. The Superintendent of Police, Karwar, by bill dated 1-1-1980 to the Managing Director of the assessee-company demanded payment of Rs. 3,77,530 for providing police guards to the industrial property. The assessee-company, therefore, in the Profit Loss account debited this amount of Rs. 3,77,530 for police deployment for the period 24-7-1979 to 24-9-1979 and a further provision of Rs. 3,77,000 for similar police deployment for the subsequent two months, i.e., 25-9-1979 to 20-11-1979. There was thus a debit in the Profit Loss account of Rs. 7,54,530 on account of police charges which was included in the total security charges of Rs. 11,11,641 appearing in the manufacturing and other expenses. The Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted to us that the method of accounting of the assessee-company was Mercantile and, therefore, the liability for payment for the services rendered by the police personnel arose the moment the services were performed. Elaborating on his arguments, Shri Patel pointed out that the police personnel were deployed during the period of the lock-out, i.e., 24-7-1979 to 20-11-1979, i.e., during the previous year relevant to this assessment year. He, therefore, vehemently argued before us that amount of Rs. 7,54,530 on account of payment for the services by the police deployed was an admissible deduction in working out the business income in this year in view of the ruling of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when there was deployment of additional police personnel on the application of a person that the deployment of the additional police personnel is at the cost of the person making the application for the same and there again, if the bill made in this connection by the Police authorities was disputed, the matter had to be referred to the District Magistrate who had to determine both whether any amount had to be paid and, if so, what was the payment for the additional deployment of police personnel and had also to determine by whom the payment was to be made. Reference in this connection was made by him to the writ petition filed by the assessee-company wherein it was sated that the assessee-company had not made any application seeking help of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the assessee-company, as mentioned by it in the writ petition, was never made. He, therefore, submitted that this was, in the first place, not a liability at all and even if it was liability, it was a contractual liability which could be claimed as a deduction only in the year in which the liability was accepted by the assessee. Shri Subramanian submitted to us that even after the order of the Hon'ble High Court dated 1-4-1985 when a decision was taken by the Deputy Commissioner and District Magistrate by order dated 22-7-1985, the assessee-company, again, did not accept this order and filed a second writ petition before the Hon'ble High Court which was still pending. In these circumstances, according to Shri Subramanian, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional police personnel was made and the Superintendent of Police had also not taken any undertaking from the assessee-company that the additional police or guards deployed will be at the cost of the assessee-company for which the assessee-company had to pay. In these circumstances, the liability of the assessee-company, if any, on account of the deployment of the police personnel during the lock-out period which, according to the assessee-company was normal deployment for maintenance of peace and for which no application was made by the assessee-company and according to the police department was additional deployment for which the assessee-company had to bear the cost, will only arise when the liability on this account was determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Superintendent of Police after the end of the previous year has not been accepted by the assessee-company till today and, therefore, it is, in the first place, not a liability and even if it is a liability, it cannot be the liability of the previous year relevant to the assessment year 1980-81 even under the mercantile system of accounting. In respect of the second amount of Rs. 3,77,000, for which there was a mere provision in the account books and even a bill was not submitted by the Superintendent of Police to the assessee-company, the assessee-company's case for deduction of the amount in working out the business income is much weaker. We have, therefore, no hesitation in coming to the conclusion that the claim of deduction of Rs. 7,54, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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