TMI Blog1992 (6) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... as a senior Director of M/s. Gordon Woodroffe Ltd. The aforesaid two foreign principals transferred their business connections to M/s. International Services, a firm consisting of three partners, namely, Smt. Comala Gopinath, wife of C.D.Gopinath, Mrs. Kamani Gopinath daughter of C. D. Gopinath and Arvind Gopinath, son of C. D. Gopinath. Thereupon, M/s. Gordon Woodroffe Ltd. filed suit bearing C.S. No. 450 of 1977 and C.S. No. 26 of 1978 alleging, inter alia, that the said Gopinath had in a clandestine manner got hold of the business of the foreign principals and claiming, inter alia, liquidated damages. And by their order dated 30-4-1982, the High Court of Madras awarded to the plaintiff a sum of Rs. 42 lakhs as and by way of liquidated da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said provision came to be made on the basis that the liquidated damages of Rs. 42 lakhs awarded by the High Court on 30-4-1982 was to be shared equally by the assessee-firm and its two foreign principals. 6. The Assessing Officer negatived the assessee's claim. In this regard, the following considerations weighed with him : (i) The liability to pay the liquidated damages in question did not arise out of the business of the assessee as there was no contract between the assessee and the said M/s. Gordon Woodroffe Ltd. (ii) In any event, the provision made in a sum of Rs. 14 lakhs was nothing but a contingent liability and that secondly, no revenue deduction was admissible. (iii) Without prejudice to the foregoing, the outlay in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 37 of the IT Act, 1961. (iv) Above all " the Court itself has decreed that if any amount is realised in one suit, it is bound to give credit of such realisation in the other suit which has been decreed for a like amount. In other words, the liability cannot be treated as accrued. On these considerations, I hold that the provision of Rs. 14 lakhs cannot be deducted." 8. It is in these circumstances that both the assesse-firm and two of its partners are now before us. 9. Giving the highlights of the case, Shri Ramamani, the learned counsel for the assessee, contended that by reason of the High Court order dated 30-4-1982, the liability to pay a sum of Rs. 14 lakhs got fastened on to the assessee-firm and that, therefore, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us has two inter-related aspects. The first question is : When exactly did the liability to pay the liquidated damages arise? The second and related question is : Did the liability arise on revenue account, in which event it will be revenue deductible, or on capital account, in which event it would not be ? 13. The case before us is a specie of the larger genus of " conversion cases ". The case of M/s. Gordon Woodroffe Ltd. was that C.D. Gopinath was in its employ as the senior Director and that consequently, his fidelity was to be available exclusively to the company. Yet, in breach of faith, the said Gopinath managed to wean the aforesaid two foreign principals away from the company and towards a firm consisting of his relatives. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim is adjudicated upon or when it is accepted by the assessee. 16. The case before us is one of breach of faith. True, on 30-4-1982, the High Court awarded damages. At the first blush, it would appear the liability to pay the damages got fastened on to the assessee on that day. But a closer look at the facts of the case would indicate to the contrary. As pointed out earlier, the parties to the dispute subscribed to a memo of compromise dated 28-10-1991. This would mean that it was only on that day that the assessee accepted its liability to pay liquidated damages. It is significant to note that by the act and deed of subscribing to a memo of compromise, both the parties to the dispute had not acted upon the order dated 30-4-1982. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability to pay its share of the liquidated damages arose on 31-10-1991 when the Memo of Compromise was made the decree of the Court. it should, therefore, follow that as regards the assessment for the assessment year 1983-84, which is now before us, the assessee's claim must fail. 18. As pointed out supra, the related question centres on the merits of the case. In the view that we have taken of the matter relating to the accrual of the liability we do not consider it necessary to examine the merits of the case. 19. In view of the foregoing, therefore, we hold that the liability to pay the assessee's share of the damages as finally quantified on compromise will have to be dealt with in the assessment year relevant to the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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