TMI Blog1993 (2) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... r years on public deposits although company's liability to pay interest still exists. In the view of the management, quantum of liability is still to be decided by the High Court". The Assessing Officer based on the note so appended by the auditor to the balance-sheet considered it as similar in nature to the bonus provided and written back. He had further impressed by the fact that the assessee credited the amount to the Profit Loss A/c of the year and had initially offered it as income but subsequently withdrawn by the assessee, which act of withdrawal was treated as an afterthought. He was, therefore, convinced that such write-back of interest has to be taxed as income. 3. The CIT(A) in his order had summarised the submissions of the appellant. He observed that the results of the assessee-company was very poor and to improve the image of that company, to show some profit in the accounts, the company had sought to write back the provision that was made in the earlier years on the interest on the public deposits received by the company. The CIT(A) considering the observation of the auditors that in the view of the management, the quantum of liability was still to be decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of the principal sum within two years from the effective date. (iv) 20 per cent of the principal sum within three years from the effective date. (v) 20 per cent of the principal sum within four years from the effective date. (vi) 30 per cent of the principal sum within five years of the effective date. " 5. The outstanding interest for the earlier years which was written back in the year is also reproduced for the sake of facility :------- Asst. year Accounting year Amount in ending Rs. 1977-7830-6-19761,78,390 1978-7930-6-19771,84,453 1979-8030-6-19781,84,054 1980-8130-6-19791,83,979 1981-8230-6-19801,83,861 1982-8330-6-19811,69,088 1983-8430-6-19821,47,544 1984-8530-6-19831,16,946 ------------------------ Total 13,48,215 ------------------------ 6. The CIT(A) after considering the above and also the direction of the High Court that 50 per cent of the interest shall be paid within 90 days from the effective date and the remaining 50 per cent of the interest within 180 days from the effective date, and that the depositors shall be paid interest on the principal sum which remained unpaid @ 12 per cent per annum from the effective date, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... got converted into a compromise or arrangement scheme. It was, accordingly, the Delhi High Court after examining the scheme pronounced its order, copy of which has been placed in the paper book at pages 23 to 26. He submitted that the date of the compromise decree of the Delhi High Court is of5th December, 1979. He submitted that the various public deposits that was received by the company, interest as were governed by the Companies Act were agreed to be paid by the company to the various depositors. The entire scheme of public deposits was governed by the Company's Acceptance of Deposits Rules, 1975. The company was running into losses and was unable to meet its liability towards the interest on the public deposits it received. The company had been providing interest as per the terms of agreement at the time of receiving of deposits, which was as per the Rules of the Company's Acceptance of Deposits Rules, 1975, with which fact, the revenue is not in dispute. He submitted that the interest that was outstanding aggregating to Rs. 13,48,215 contained two components. One interest as was payable as per the Company's Acceptance Deposits Rules, 1975 till the effective date and the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een so done to present a better picture, being in the nature of unilateral action does not result in any income much less the deemed income. He placed reliance on Tractor Equipment Corpn. Ltd. v. ITO [1984] 9 ITD 132 (Delhi),IndiaCoffee Tea Distributing Co. Ltd. v. IAC [1987] 23 ITD 479 (Bom.), CIT v. Sugauli Sugar Works (P.) Ltd. [1983] 140 ITR 286 (Cal.) at page 292, CIT v. Batlibol Co. (P.) Ltd. [1984] 149 ITR 604 (Bom.), CIT v. Pre-Stressed Concrete Co. (S.I.) (P.) Ltd. [1986] 162 ITR 314 (Mad.) and CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 128 (Bom.). 9. Mrs. Surbahi Sinha, Senior Departmental Representative, vehemently supported the orders of the authorities below, and placed reliance on Batliboi Co. (P.) Ltd.'s case, CIT v. Batliboi Co. (P.) Ltd. [1989] 177 ITR 289 (Bom.), CIT v. Haryana Co-operative Sugar Mills Ltd. [1985] 154 ITR 751 (Punj. Har.) and ITO v. Foremost Dairies Ltd. [1986] 18 ITD 157 (Bom.). 10. Shri Syali, the counsel for the assessee in his re-direct submitted that the Bombay High Court in Chase Bright Steel Ltd. (No. 1)'s case considered its earlier decision in Batliboi Co. (P.) Ltd.'s case and had observed that that decision w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of remission to be performed. Since the depositors have not performed the act of remission in favour of the assessee-company in the light of the High Court compromise order, the liability continues to subsist. 12. The write back by the assessee to the credit of Profit Loss A/c as stated by it is for showing a better picture to the public. The mere act of passing of entries in the books of accounts from liability to write back does not change the character of the liability as such unless there are extraneous circumstances such as remission in favour of the assessee. By passage of time, the character of liability would not change at the instance of the assessee-company alone. The liability to pay the interest is a contractual liability which was initially so fastened on the company in view of the Company's Acceptance of Deposits Rules, 1975. Since the company was unable to pay the interest at the rates specified in those rules, the compromise decree was sought and the depositors had agreed for reduced rate of interest. The rate of interest so determined by the High Court of 12 per cent is payable on the outstanding principal sum on the effective date, reduced by repayment of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as so ordered by the High Court having not been modified the liability continues to subsist insofar as the company is concerned and right to recover continues with the depositors. 15. Related to the above issue is the claim of provision of interest on the public deposits of Rs. 80,811 for the current year which was not so allowed on the basis that it was not so charged to the accounts. The facts are the same as discussed earlier and since it is a contractual liability and also bears the authorities of the High Court and the assessee having following the mercantile system of accounting, despite the fact that the amount is not charged to the accounts. In view of the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 the liability has arisen in the year and has to be necessarily allowed as a deduction to the assessee. We hold accordingly. 16. The assessee is aggrieved by the disallowance of Rs. 41,192 by applying the provisions of section 40A(3) of the Act. He submitted that the expenses that have been sought to be disallowed is in regard to the various expenses on travelling incurred by the staff of the assessee-company. Shri Syali submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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