TMI Blog2017 (8) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee before the sole Arbitrator appointed by it. The demand is therefore very much alive and is subject matter of adjudication in arbitration proceedings. The order dated 29th March, 1990 of the EO no doubt holds the termination notice dated 23rd March, 1988 and the claim for enhanced licence fee to be bad in law. However, it does not hold that there is no liability on the Assessee to pay the enhanced licence fees as and when that is determined in accordance with law. The facts of the present case are more or less similar to the facts in Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt. Ltd. v. CIT (2016 (1) TMI 790 - DELHI HIGH COURT) where it was held that the fact that there may have been a stay of the enhanced demand by a judicial order as an interim measure pending the final decision in the proceedings challenging the revision. That, however, would not amount to wiping out the liability itself. As already noted the Railways has already filed its claim before the Arbitrator for the arrears of licence fees and 'damages'. As rightly held by the CIT (A), and concurred with by the ITAT in its order dated 31st July 2009, the mere characterisation by the Northern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal, Advocates. J U D G M E N T Dr. S. Muralidhar, J.: Introduction 1. These are nine appeals under Section 260A of the Income Tax Act, 1961 ( Act ), one by the Assessee and the others by the Revenue, directed against orders of the Income Tax Appellate Tribunal ( ITAT ) which pertain to Assessment Years ( AY ) 1997-98 to 2002-03, 2004-05, and 2009-10. In the appeals by the Revenue, cross-objections (C.O.) have been filed by the Assessee, i.e. Shri Jagdish Prasad Gupta, the proprietor of Pradeep Oil Corporation. 2. By an order dated 12th December, 2012, this Court had directed that the ITA No. 711 of 2011 pertaining to AY 1997-98 should be treated as the lead case. There is a common order of the ITAT dated 31st July, 2009 in the appeals filed by the Revenue for AYs 1997-98 to 2002-03. The Revenue s appeals for these AYs are ITA Nos. 711/2011, 787/2011, 936/2011, 934/2011, 933/2011 and 935/2011 respectively. For AY 2003-04, no appeal was filed by the Revenue. As regards AY 2004-05, the Revenue has filed ITA No. 1535/2010 and the Assessee has filed ITA No. 695/2010 against the order of the ITAT dated 22nd January, 2010. There is another appeal, being ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere made available for a rent to others and this was disclosed by the Assessee in his returns as income from house property from the AY 1984-85 onwards. Revisions of licence fees 5. By a letter dated 8th February, 1980 the Northern Railway revised the licence fee for the 41280 sq.ft. plot to ₹ 1/- per sq.ft p.a. with effect from 5th January 1980. Likewise, the licence fee for the plot measuring 62,156 sq.ft. was revised to ₹ 1 per sq.ft. p.a. with effect from 1st January 1981. Subsequently, a letter dated 1st June, 1986 it was revised to ₹ 1. 50 per sq.ft p.a. by letter dated 23rd October 1986 to ₹ 4/- per sq.ft and by letter dated 19th February 1987 to ₹ 7.80 per sq.ft. On this basis the licence fee aggregated to ₹ 7,07,065/- p.a. in respect of the use of land. 6. On 23rd March 1988, the Northern Railway further enhanced the licence fee to ₹ 15.60 per sq.ft. i.e. ₹ 14,14,130 p.a. The Northern Railway further terminated the licence for use of the land on the ground that the Assessee had failed to deposit the licence fees. It directed the Assessee to remove the unauthorised structure erected on the Railway land and delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be dropped being neither enhancement is made in accordance with law nor is validly revised. (iii) The Assessee is not in unauthorised occupation and not liable to pay damages. (iv) The Railways have failed to prove the liability of the Assessee to pay damages. (v) The demand and the termination based thereon are not tenable in law and the licence of the respondent cannot be terminated as stated aforesaid....However, I may point out here that to avoid frivolous litigation, the applicant should form a definite policy in revising the licence fee for a considerable period on uniform basis by incorporating the law of principles of natural justice to avoid unnecessary litigation thereby not causing losses of revenue to the railway administration under these circumstances and ensuring prompt and regular payment of licence fee by licencees. Proceedings in this Court 9. An appeal against the above order was filed by the Northern Railway before the Additional District Judge (ADJ) which ultimately came to be dismissed on 18th December 2007 on the ground of maintainability. The writ petition filed by the Northern Railway in this Court challenging th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the years from AYs 2002-03 till AY 2008-09 the Northern Railway issued letters demanding enhanced licence fees and damages. These letters contained a line which stated that payment would be subject to the decision in the pending case. In terms of a demand letter dated 5th January 2012, the total outstanding worked out to ₹ 45,42,20,091. Tax treatment of claim of licence fee as deduction 14. Now to the tax treatment of the claim of the Assessee in its income tax returns of the enhanced licence fee as a deduction. The said claim was allowed by the Assessing Officer ( AO ) for AY 1987-88. As and when the licence fee was enhanced, the deduction was claimed by the Assessee on such enhanced amount and was allowed by the AO continuously for AYs 1989-90 to 1994-95. In other words, for these AYs a sum of ₹ 13,32,286/- p.a. was allowed as deduction on account of enhanced licence fee. In three of the AYs i.e. AYs 1989-90, 1990-91 and 1993-94, the deduction was allowed after scrutiny under Section 143 (3) of the Act. For AYs 1995-96 to 1999-2000, the Assessee claimed deduction of ₹ 35,37,300/-p.a. as licence fee. In fact, for AY 1995-96 the Assessee also claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997-98 to 200001 and 2002-03 as well as the Revenue's appeal for AY 2001-02 were allowed by the ITAT by a common order dated 22nd July 2008. This Court's order dated 11th December 2008 20. The Assessee then filed ITA Nos. 1349 to 1354 of 2008 pertaining to AYs 1997-98 to 2002-03) in this Court which were allowed by it by a common order dated 11th December 2008 which reads thus: 1. In these appeals the common order dated 22.07.2008 passed by the Income Tax Appellate Tribunal is in question. The issue sought to be raised in these appeals is whether the licence fee payable to the railways for use of land as a depot, could be regarded as an accrued liability or a contingent liability. It was pointed out by the learned counsel for the appellant/ assessee that before the Tribunal he had taken a specific plea that in the assessee s own case for the assessment year 1995-1996, which had been decided by the Tribunal vide its order dated 25.11.2004, the said licence fee has been construed to be an accrued liability and, therefore, allowable as an expenditure in the year of accrual. Unfortunately, the Tribunal has not returned any finding on this aspect of the matter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y concealed certain facts could not be examined by the ITAT. For the aforementioned reasons, the appeals filed by the Revenue and the cross-objections by the Assessee were both dismissed. AYs 2003-04 to 2009-10 22. For AY 2003-04, the Revenue appears to have accepted the orders of the AO, the CIT(A) and the ITAT allowing the claimed amount of ₹ 35,37,300/-. The Revenue also has not filed any appeal in this Court for the said AY 2003-04. 23. For AYs 2002-03 to 2005-06 the Assessee claimed only ₹ 35,37,300/- p.a. as licence fee. The explanation offered by the Assessee for why he did not claim deduction of licence fee for these AYs in terms of the demand of enhanced fee as per the letter dated 20th January 1999 of the Northern Railway is that instead of claiming huge loss in the return, he preferred to pay taxes on the returned income. He thus reverted to claiming deduction of licence fee @ ₹ 360 per sq.m. on the basis of earlier notice dated 25th July 1995. Later, after receiving continuous notices from the Northern Railway and to avoid controversy, he claimed licence fee as per subsequent notices in AYs 2006-07 onwards. 24. For AY 2004-05, the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order dated 31st July 2009 incorrectly understood the scope of the remand of the matter to it by the earlier order dated 11th December 2008 passed by this Court in ITA Nos. 1349 to 1354 of 2008 (J.P. Gupta v. CIT) and has erroneously negatived the Assessee s plea that the ITAT was also required to decide the issue of the validity of the assumption of jurisdiction under Section 147 of the Act and the consequent reopening of the assessment under Section 148 of the Act. 4. Aggrieved by the order dated 31st July 2009 to the extent the ITAT negatived the above plea, the Assessee filed appeals before this Court being ITA Nos. 98, 101,102,105 and 106 of 2012. The said appeals were by order dated 6th February 2012 permitted by this Court to be treated as cross objections to the Revenue s appeals against the order dated 31st July 2009 of the ITAT. That is how we have CM Nos. 6767, 6764, 6768, 6765 and 6766 of 2012 are listed with the above appeals of the Revenue. 5. On 11th January 2012, the Court framed the following question in the Revenue s appeal: Whether the order dated 31st July, 2009 of the Income Tax Appellate Tribunal is in conformity with and decides a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stions as re-framed were in the Revenue's appeals for AYs 1997-98 to 2000-01 and 2002-03. In the Revenue's appeal for AY 2001-02 (ITA 933 of 2011) which did not involve the reopening of the assessment under Section 147 of the Act, the Assessee did not file any cross-objection. One issue raised by the Revenue in this appeal concerns the failure of the ITAT to follow the remand order dated 11th December 2008 of this Court and examine the circumstances under which the Revenue failed to challenge the ITAT's order dated 22nd November 2004 for AY 1995-96. Consequently for the said appeal the questions of law that are framed are: (i) Whether the order dated 31st July 2009 of the ITAT is in conformity and decides all the aspects/issues remitted to it by order dated 11th December 2008 passed by this Court? (ii) Was the ITAT right in holding the licence fee payable to the Railways to be an accrued liability ? 29. As far as AY 2004-05 is concerned, the Assessee's appeal is ITA 695 of 2010 and the Revenue's appeal is ITA 1535 of 2011. Both these appeals are, as already noted, directed against the common order dated 22nd January 2010 of the ITAT by whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive challenges by the Northern Railway in the higher forums. Therefore, in terms of the decision dated 19th April 2017 of this Court in ITA No. 161 of 2016 ( National Agricultural Marketing Federation of India v. Commissioner of Income Tax, Delhi -IX ), there was no subsisting liability on the Assessee as regards enhanced licence fee. (iii) The Assessee had not deposited a paisa more than ₹ 1,05,570/- with the Northern Railway towards licence fee notwithstanding the demand was in excess of ₹ 45 crores. The Northern Railway Railways did not appear to have initiated steps to recover the enhanced licence fees. The only inference that could be drawn from the correspondence is that the amounts were neither payable by the Assessee nor enforceable by the Railways. (iv) The arrears for the period from 1st April, 1986 to 31st March, 1996 calculated by the Railways at ₹ 7.80 crore and all subsequent demands were actually a claim for damages. It was, therefore no better than a contingent liability. Reliance was placed on the decision in CIT v. Goverdhan Ltd. [1968] 69 ITR 675 (SC); Shree Sajjan Mills Ltd. v. Commissioner of Income Tax, M.P. [1985] 156 ITR 585 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lent acts and omissions of the Assessee. The said order dated 22nd November, 2004 was dishonestly procured by the Assessee and should well be ignored. Reliance was placed on the decision in A.V. Papayya Sastry v. Government of A.P. (2007) 4 SCC 221. In the same breath it was contended that the said order and the orders dated 22nd July 2008 and 22nd January 2010 of the ITAT for multiple AYs and AY 2004-05 were in fact in favour of the Revenue inasmuch as they held that the liability to pay enhanced licence fee was only a contingent and not an accrued liability. Therefore, there was no need for the Revenue to challenge the order dated 22nd November 2004 of the ITAT for AY 1995-96. (viii) In its order dated 31st July 2009 i paras 4, 7 and 8, the ITAT did discuss the reopening of the assessments under Section 148 of the Act and was within its rights to refuse to adjudicate the issue. Moreover even this Court by its order dated 11th December 2008 did not require the ITAT to examine this issue. Submissions of learned Senior counsel for the Assessee 33. Mr. C.S. Agarwal, learned Senior Advocate appearing for the Assessee, pointed out that the order of the ITAT for AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of Mr. Manchanda that the order of the ITAT for AY 1995-96 was in favour of the Revenue. It was to the contrary. The said order allowed the deduction of ₹ 35,37,300/- as claimed by the Assessee in its entirety. Undeniably, the said order has not been challenged by the Revenue and has attained finality. In fact, appeal effect has also been given to the said order and yet there is no challenge. Mr Aggarwal also pointed out that the order dated 22nd July 2008 of the ITAT was set aside by this Court and cannot be relied upon by the Revenue. 38. Mr. Agarwal disputed the contention that the Assessee had kept back the fact of the EO's order from the AO or made any fraudulent claim for deduction of enhanced licence fee as alleged. He further disputed the contention that the said order absolved the Assessee wholly from liability to pay the licence fee. Mr Aggarwal submitted that the essential requirement of Section 147 of the Act for reopening the assessment was not fulfilled in the present case. Reliance was placed on the decisions in Mohan Gupta (HUF) v. CIT (2014) 366 ITR 115 (Del) and ACIT v. Rajesh Jhaveri Stock Brokers P Ltd. (2007) 291 ITR 500 (SC). Mr. Aggarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher forum. Also the fact that the Assessee had failed to debit the liability in its books of accounts did not prevent it to claim the said sum as deduction either under Section 10(1) or under Section 10(2)(xv) of the Income Tax Act, 1922. It was held whether the Assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the Assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. 40. This was in line with the earlier decision in Calcutta Co. Ltd. v. Commissioner of Income Tax, West Bengal (1959) 37 ITR 1 (SC) where the Supreme Court explained that an Assessee following the mercantile system of accounting could claim a deduction of an estimated expenditure towards development of plots purchased by it even before actually incurring the expenditure. This was not a statutory liability but a contractual one. The Assessee in that case was a developer dealing in land and property. The Supreme Court noted that the relevant clauses of the sale deed spelt out the undertaking of the Assessee to carry out the develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Herschell in Bussel v. Town and County Bank, Ltd. (1888) 13 App. Cas. 418: The duty is to be charged upon a sum not less than the full amount of the balance of the profits or gains of the trade, manufacture, adventure, or concern'; and it appears to me that that language implies that for the purpose of arriving at the balance of profits all that expenditure which is necessary for the purposes of earning the receipts must be deducted, otherwise you do not arrive at the balance of profits, indeed, otherwise you do not ascertain, and' cannot ascertain, whether there is such a thing as profit or not. The profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure necessary for the purpose of earning those receipts. That seems to me to be the meaning of the word profits in relation to any trade or business. Unless and until you have ascertained that there is such a balance, nothing exists to which the name profits can properly be applied. 43. In Bharat Earth Movers v. Commission of Income Tax (supra), the Supreme Court had an occasion to explain the distinction between accrued and contingent liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. 45. The Supreme Court in Bharat Earth Movers v. Commission of Income Tax (supra) held that the provision made by the Assessee for meeting its liability under the leave encashment scheme would entitle it to deduction since it was not a contingent liability. 46. The above dictum was followed by this Court in R.C. Gupta v. Commissioner of Income Tax (supra). In that case the AO on scrutiny of the Assessee s trading account notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated demands notwithstanding the EO's order dated 28th March 1990. As noted earlier, the Northern Railway has preferred claim for arrears of enhanced licence fees and damages to the tune of over ₹ 45 crores against the Assessee before the sole Arbitrator appointed by it. The demand is therefore very much alive and is subject matter of adjudication in arbitration proceedings. 43. The order dated 29th March, 1990 of the EO no doubt holds the termination notice dated 23rd March, 1988 and the claim for enhanced licence fee to be bad in law. However, it does not hold that there is no liability on the Assessee to pay the enhanced licence fees as and when that is determined in accordance with law. The EO has in fact observed that the Northern Railway should form a definite policy in revising the licence fee for a considerable period on uniform basis by incorporating the law of principles of natural justice to avoid unnecessary litigation thereby not causing losses of revenue to the railway administration under these circumstances and ensuring prompt and regular payment of licence fee by licencees. Also the EO ends the order by stating: The applicant is free to revise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee. If it goes in favour of the Assessee it would then have no liability to pay such enhanced licence fee and in the year in which such final decision is rendered, the corresponding reversal of entries will have to take place in terms of Section 41(3) of the Act. All of this, in no way, extinguishes the liability of the Assessee to pay the licence fee. The Assessee would be justified in claiming the enhanced licence fee as deduction in the year in which such enhancement has accrued even though the Assessee has not paid such enhanced licence fee in that year. This legal proposition is well settled. 48. In these proceedings, the Court is not required to determine whether the Northern Railway validly enhanced the licence fee from time to time. That would be the subject matter of the arbitration proceedings that are pending. What is to be seen is whether the liability to make that payment arose during the AYs in question. If it did, it would have to be allowed in that very year in which it arose if the Assessee is, as in the present case, following the mercantile system. As already noted the Railways has already filed its claim before the Arbitrator for the arrears of licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the notice dated 20th May, 2004, for AY 1997-98 to 2000-01 and AY 2002-03. 53. At the outset the Court notes that indeed the ITAT on remand was required to examine this question which arose in the C.O.s filed by the Assessee in the appeals of the Revenue all of which were remanded to the ITAT by the order dated 11th December 2008 of this Court. Nevertheless, the Court does not propose to remand the matters once again to the ITAT for this purpose. 54. The reopening of the assessments for the above AYs was premised on the failure by the Assessee to bring the EO s order dated 28th March 2000 to the notice of the AO. Further only on the basis of the AO s order dated 19th March 2004 for AY 2001-02 it has been inferred that there has been an escapement of income. 55. The fact is that in some of the AYs after the date of the EO s order, the assessments were completed under Section 143 (3) of the Act accepting the claim for enhanced licence fee on the basis of accrued liability. This has been already adverted to earlier in this order. There was therefore no fresh tangible material that came to light for the first time for the AO to form reasons to believe that income had escap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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