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TMI Blog1989 (7) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... . (1984) 41 CTR (Bom) 388 : (1984) 149 ITR 604 (Bom). 3. The learned counsel for the assessee, on the other hand, contends that the amounts brought to tax by the tax authorities were not exigible to tax. In similar circumstances relief was awarded to the assessee by the Tribunal for the asst. yr. 1974-75 and the Departmental reference application was also rejected. The learned counsel for the assessee was fair enough to concede that for the asst. yr. 1980-81 the Tribunal had decided an identical issue in favour of the Department and that was for the reason that the details regarding the nature of the credit balances written back were not furnished. It was in these circumstances, the Tribunal took the view that the amount was liable to tax. For the year under consideration full details of the amount written back were furnished to the ITO and, therefore, the decision of the Tribunal on which reliance has been placed by the learned Departmental Representative would not be of any help. It is then submitted that under the provisions of s. 41(1) of the Act, credit balances written back could be treated as income only if there is a total remission or cessation of liability. Where the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier year, the same are not liable to be taxed during the year under appeal, has to be rejected. Apart from the fact that the decision reported in 149 ITR 604 does not put any fetters of this nature or the ITO, these amounts would be liable to tax in the year in which the same were carried to the P L A/c. In the result, out of the total relief of Rs. 1,33,252 granted by the CIT(A), relief to the extent of Rs. 67,688 alone is sustained. 5. The next ground of appeal is that the CIT(A) was in error in allowing promotional expenses to the extent of Rs. 21,06,69,751 and that the CIT(A) should have restricted the deduction only to the extent of Rs. 49,93,847 which was the amount that was actually charged to the P L A/c and which represented proportionate part of the expenses on the work done in the year under consideration. The appreciate the dispute, it would be necessary to set out the facts of the case in brief detail. The assessee had entered into a contract with M/s Pakhia's Ltd. and M/s Amasgo A.G. In terms of this agreement, the assessee had to pay promotional, development and consultancy fees to these parties, a sum calculated at the rate of 11 per cent of the contract re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for allowing anything beyond Rs. 46,93,847. The claim of the assessee, that it was irrevocably committed to the payment of Rs. 46,93,847. The claim of the assessee, that it was irrevocably committed to the payment of Rs. 3,66,45,636, should have been rejected by the CIT(A). Under the terms of the agreement the payment was by way of promotional, development and consultancy fees. These parties were under an obligation to render services to the assessee during the entire period of execution of the contract and, therefore, it cannot be said that no sooner Tabrize line contract was awarded then the liability to make the payment arose. The liability is based on the value of the contract and it was for this reason the ITO has allowed it on proportional basis. Even the assessee in its books of accounts has charged only the liability on a pro rata basis. This could only strengthen the case of the Department. 7. The learned counsel for the assessee contendeds that the entire amount should have been allowed by the CIT(A). The agreement is quite explicit in this regard and as per the agreement the liability to make the payment arose as soon as the Tabrize line contract was awarded to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact was also paid. The balance 50 per cent was payable on pro rata basis on receipt of progressive payments by the assessee. It is for this reason that the assessee had debited to the P L A/c promotional fees amounting to only Rs. 46,93,847. The claim also cannot be denied merely because the entire amount was not charged to the P L A/c, as accrual of the liability is not dependent on the entries made in the books of account. 9. We have heard the parties to the dispute. As observed earlier the CIT(A) has allowed deduction of Rs. 2,06,69,741 out of the total claim of Rs. 3,66,46,636. The sum which was required to pay and which was in fact paid on signing of the contract of Rs. 1,83,28,818 and a further sum of Rs. 23,46,923 being 5.5 per cent of the value of the contract executed during the year are the deductions allowed by the CIT(A). We do not see any serious flaw in the order passed by the CIT(A). It is an accepted position that the assessee has been following the mercantile system of accounting. A liability which has been definitely incurred has to be allowed as a deduction, in such a case even though the same was to be discharged in instalments. Some of them might fall outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 8 per cent of the total revenue receipts. The next item is a sum of Riyals 1,28,865. This is payable under Art. 167 of Direct Taxation Act of Iran. Such tax is payable at the rate of 3 Riyals per 1,000 on the taxable income earned. The third time is of Riyals 19,23,356. It appears that this amount was taxed under Arts. 76 and 79 of Iran Taxation Law. The ITO rejected the claim of the assessee, as, according to him, this was the tax which M/s Kamani Ashoka Construction Co. Ltd. was to pay. In proceedings under s. 144B the IAC approved the stand taken by the ITO and further observed that the ITO was justified in holding that the corporate taxes paid by the assessee would be taxable as income and no deduction would be available in view of the provisions of s. 40(a)(ii) of the Act. The CIT(A) has dealt with this issue in para 62 of his order. He has held that the ITO was not justified in holding that these were taxes paid by KACCL. He held that weighted deduction is admissible on foreign taxes and he also observed that the ITO himself is stated to have allowed such deduction on rates and taxes paid by Libya branch. 11. It is contended by the learned Departmental Representative th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese cases it is contended that the amount paid in Iran by way of tax is a deductible item. What could be disallowed is only a tax on income computed in the manner laid down under the IT Act, or computed in a commercial manner. 12. The learned counsel for the assessee further submitted that in all the above three cases the issue before the Court was the deductibility of tax paid and not merely the applicability of s. 40(a)(ii) corresponding to s. 10(2)(xx) of the Act. It is then pointed out that it is the net foreign income of the assessee which cold be brought to tax in India and in support of this contention of the assessee advances the theory that under the IT Act it is only the real income that could be brought to tax. Our attention was invited to the decisions reported in CIT vs. Shaw Wallace and Co. Ltd. (1981) 21 CTR (Cal) 285 : (1981) 132 ITR 466 (Cal) and CIT vs. Oriental Co. Ltd. (1981) 25 CTR (Cal) 75 : (1982) 137 ITR 777 (Cal) where the Courts have taken the view that it was the net dividend income (foreign) after excluding therefrom the tax deducted at source that is taxable to Indian Income Tax Based on these decisions even if it is to be held that taxes paid in Ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover is deemed to be the income of the assessee, the claim that the tax paid in pursuance of such provisions could not be considered as tax paid requiring relief under s. 91 of the Act has to be rejected. We are of the opinion that this contention of the assessee is not supported by any provisions contained in the IT Statute. Even the cases relied upon by the assessee cannot be regarded as authority for such proposition. The decision of the Tribunal in the case of Southern Association Shippig Corpn. Ltd. also would be of very little help in this regard. The fact that the reference application filed under s. 256(2) has been rejected, to our mind, does not advance the case of the assessee. This is because in dealing with an application under s. 256(2) the Court has only to consider whether a question, which could be supported by reasonable arguments, arose out of the Tribunal's order and the Tribunal had refused to state the case. Even in a case where reference has been granted, as inference that the conclusions of the Tribunal in IT appeal were not correct does not emerge. Similarly, in a case where reference under s. 256(2) by the Department has been refused, it cannot be said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r weighted deduction in terms of provisions of sub-cls. (iv) and (vii) of s. 35B(1)(b) of the Act. KACCL was a company floated by the assessee only with a view to carrying on construction work awarded to the assessee and as per the agreement between the assessee and the new company the entire liability or loss of that company was to be borne by the assessee. If one goes through the provisions of s. 35B, it would be clear that to be eligible for weighted deduction under s. 35B, it is not necessary that the expenses should be directly incurred by the assessee. Even where the expenses are incurred through another party, the same would be eligible for weighted deduction. The matter has also been clarified by the CBDT vide Circular No. 27 dt. 16th Aug., 1987. In these circumstances, we are of the view that the CIT(A) was justified in allowing weighted deduction on the above three items. Guarantee commission —The assessee had to provide performance guarantee and the bid bond guarantee and only on furnishing of these two guarantees a contract would be awarded to the assessee. This expenditure was, therefore, necessarily to be incurred for the execution of contract outside India and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat reason the assessee also would not be eligible for weighted deduction. The deductibility of the other two items has not been considered properly by the Revenue authorities and for that reason we have remanded the case to the ITO. The question of allowability of weighted deduction shall also be considered by the ITO while deciding the deductibility of this amount. Insurance— This was expenditure incurred by the assessee for insuring materials lying at the site. It is the expenditure on transit insurance alone that would be hit by the provisions of s. 35B(1)(b)(iii). We see no serious flaw in the CIT(A)'s order granting weighted deduction on this. Registration fees— It is common ground that weighted deduction has to be granted on registration fees. The dispute is only in regard to the quantum. On a perusal of the order of the CIT(A) it is seen that the ITO had allowed weighted deduction on Rs. 11,65,743 being the amount debited in the accounts for the year 1978-79. But such registration fees though debited in the year 1978-79 were claimed and allowed as deduction in the year 1977-78. The registration fees pertaining to this year was Rs. 11,29,865 and on this amount the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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