TMI Blog1994 (10) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Supreme Court in Chowringhee Sales Bureau P. Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC). The assessee's contention was that though the collections constituted receipts, inasmuch as the assessee was maintaining mercantile system of accounting, it had a corresponding liability to pay tax into the credit of the Government and such liabilities fastened on the assessee in the year of collection itself. Therefore, it was contended that the deduction should be allowed in a corresponding amount towards such accrued liability. This contention did not meet with favour either before the Assessing Officer or before the first appellate authority and, therefore, the assessee is in second appeal before us. 2. Having heard rival submissions, we delete the addition of Rs. 1,21,162. It is not in dispute that the assessee is following mercantile method of accounting. It is also not in dispute that the assessee is statutorily bound to make over the tax collections to the credit of the Government. Thus while the collection of tax constituted receipt in the hands of the assessees, has been rightly held by the authorities, the obligation on the part of the assessee to make ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC)]. In the latter case, the assessee-company, which followed the mercantile system of accounting, incurred a liability of a large sum on account of sales-tax determined to be payable by it. The sales-tax demand was raised pending the income-tax assessment for the same year. The Supreme Court held that the moment a dealer made either purchases or sales, which were subject to sales-tax, the obligation to pay the tax arose. Although that liability could not be enforced till quantification was effected by assessment proceedings, the liability for payment of tax was independent of the assessment. The assessee, which followed the mercantile system of accounting, was entitled to deduct from the profits and gains of its business liability to sales-tax which arose on sales made by it during the relevant previous year. The assessee was entitled to the deduction of the amount of sales-tax which it was liable under the law to pay during the relevant accounting year. That liability did not cease to be a liability because the assessee had taken proceedings before the higher authorities forgetting it reduced or wiped out so long as the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to depreciation at 15%. Thus, we allow this ground of appeal. 4. The third ground of appeal is against the order of the CIT(A) in holding that the retrenchment compensation of Rs. 6,31,267 was not a revenue expenditure eligible for deduction from the income of the assessee. The Hotel Sealord was closed w.e.f. 28th July, 1980, due to labour disputes, when the same was in the hands of the previous owner. The agreement to sell the hotel to the transferee was made on 25th April, 1981. As per the agreement there was a clause stating that all workers were paid compensation under s. 25FF of the Industrial Disputes Act, 1947. According to the terms of the agreement, the purchaser was to discharge the liabilities in respect of the sundry creditors and debtors. The agreement further stipulated that the purchaser will not be liable to meet any other liabilities pertaining to the business undertaking which have been incurred by the vendor. After the hotel was purchased by the appellant, a settlement was arrived at between the Managing Director of the Sealord Hotel and the representative of the workmen that an amount of Rs. 6,31,267 should be paid as compensation to the employees, who were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t take possession of the building because the irate labourers were squatting on the road leading to the Hotel preventing entry into the building. It is in such circumstances that the assessee had to enter into an agreement with the workers before the Labour Commissioner agreeing to pay the compensation. Even though the assessee is not bound to pay compensation, it had to in order to gain entry into the building and conduct the business. Thus, the compensation was to protect the right and title of its assets from jeopardy or physical injury. Hence, the compensation amount can be viewed as a capital expenditure in connection with or incidental to the acquisition cost of the asset. May be the expenditure was not incurred at the point of acquisition but only afterwards. But all the same it can be linked into the acquisition cost but for such payment of compensation to the irate labourers the assessee would not have gained possession of the building and other assets purchased under the agreement. Thus holding that the expenditure is a capital expenditure as it was incurred in connection with or incidental to the acquisition of the capital assets, we uphold on principle the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. . . 12-7-1980 1,00,000 D.C. Johar Sons P. Ltd. by cheque 3-9-1980 4,00,000 K.L. Johar Co. by cheque 25-4-1981 7,20,000 D.C. Johar Sons by cash 16-5-1981 35,000 -do- by cheque 25-5-1981 3,00,000 -do- by cheque This amount was returned to the assessee on 2nd July, 1981 in two cheques as follows: Date Payer Amount Payee Mode of payment 2-7-81 K.L. Johar Co. 12,00,00 Issac Peter,, M.D. of Issac Peter Co. by cheque 2-7-81 D.C. Johar Sons 3,00,000 " by cheque It was further pointed out that the amount of Rs. 3 lakhs returned by D.C. Johar Sons and an amount of Rs. 12,20,000 returned by K.L. Johar Company were received by Issac Peter Company and the amounts were credited in the bank account of Sri Issac Peter in account No. 1019 with Nedungadi Bank. In support of this claim, the assessee had furnished a copy of the bank account of Sri Issac Peter before the CIT(A). It was further pointed out that out of the original advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1119). The details are as under: D.C. Johar Sons (P) Ltd. (A/c No. 1117) 23rd June,1981 By initial deposit Rs. 1,00,000 2nd July, 1981 By cheque Rs. 63,66,300 2nd July, 1981 By cheque Rs. 40,000 2nd July, 1981 To Issac Peter Rs. 3,00,000 2nd July, 1981 To K.L. Johar Co. Rs. 12,20,300 Sea Lord Hotel (P) Ltd. (A/c No. 1118) 23rd June, 1981 By initial deposit Rs. 100 3rd July, 1981 By cheque Rs. 63,66,300 3rd July, 1981 To D.C. Johar Sons P. Ltd. Rs. 63,66,300 K.L. Johar Co. (A/c No. 1119) 23rd June, 1981 By initial deposit Rs. 500 3rd July, 1981 By cheque Rs. 12,20,000 3rd July, 1981 To Issac Peter Rs.12,20,000 According to the Assessing Officer, if the four accounts are seen together, it could be seen that the source of Rs. 15,20,000 for Issac Peter to advance the money to Sea Lord Hotel (Pvt.) Ltd. is the amount received from D.C. Johar Sons (Pvt.) Ltd. (Rs. 3 lakhs) and K.L. Johar Co. (Rs. 12,20,000). Similarly, for D.C. Johar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.C. Johar Sons P. Ltd. By cheque . 15,55,000 . . Out of this, an amount of Rs. 35,000 paid on 15th May, 1981, has been adjusted as deposit for the PBX installed in the hotel. After excluding this amount of Rs. 35,000, the balance is Rs. 15,20,000. Out of this, only an amount of Rs. 7,20,000 has been paid in cash on 25th April, 1981. The appellant's representative submitted before me the source of this amount. This is said to be from the loan taken by Issac Thressiamma, Ancy Issac and Aniamma Jose of Rs. 3 lakhs each. Necessary evidence and their bank statements were produced before me in support of the source of this money. After considering the various evidences produced before me, I do not find any unaccounted money involved in this transaction. Taking all these factors into consideration, I do not find any reason for making an addition of Rs. 15,20,000 on this account. Hence, this addition is deleted." Regarding the addition of Rs. 1,69,000 shown as loan from bank by Issac Peter, in L.D.R. Account No. 1019, he dismissed the plea of the assessee for the reason that it was not seriously contested before him. The Revenue is aggrieved regardi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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