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2016 (1) TMI 790 - HC - Income TaxDisallowance of liability of licence fee and on account of interest on arrears of licence fee payable to N.D.M.C. for running the business at Chanakya Cinema - Ascertained or accrued liability - Held that:- There was no question of there being no liability on the Assessee whatsoever for the renewal of the licence. Merely because the Assessee had chosen to challenge in Court the enhancement of the licence fee, which was permissible to be raised by it in accordance with law, did not preclude the Assessee, which was following the mercantile system of accounting, from claiming it as a liability during the AYs in question. The Court, therefore, does not, in view of the averments made by the Assessee in the pleadings in the suit filed by it against the NDMC, as a reason to preclude the Assessee from claiming the licence fee, the head office fee and the interest on arrears payable to the NDMC in terms of the renewed licence deed as a liability for the AYs concerned. The ITAT also appears to have drawn a distinction between a statutory liability and a contractual liability and opined that a deduction in respect of the contractual liability would be permissible “only when the disputes are settled.” This is contrary to the legal position as explained in the above decisions of the Courts. Even where a challenge is laid to a liability arising under a contract, by a challenger initiating legal proceedings, such challenger can still for the purposes of its accounts and for the purposes of computation of its income tax liability claim the entire amount under challenge as an accrued liability as long as such amount is ascertainable. Corresponding adjustments would be made in the year in which the suit is finally decided or the disputes settled. That, however, would not preclude the Assessee from claiming it as an ascertained liability. The ground urged on behalf of the Assessee as regards consistency also merits acceptance. There is indeed a demonstrable inconsistency in the Revenue’s stand in the matter. While the Assessee consistently claimed liability towards licence fee, the Revenue appears to have accepted it in its entirety some years and not in some others. In AYs 1982-83 to 1986-87, the AO fully allowed the amount as claimed in respect of the licence fee as well as interest by the Assessee in terms of the Agreement dated 23rd September, 1980. ITAT was in error in declining the plea of the Assessee for the AYs in question with regard to the full claim of the payment towards licence fee and interest on the arrears of licence fee. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue.
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