9911796707
TMI Blog2002 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year for each of the assessment years 1972-73 and 1973-74, the assessee, a private limited company, was engaged in the business of manufacture of concrete mixtures, concrete vibrators and other machinery used for construction of building, dams, etc. The issue relates to the disallowance of Rs. 1,72,462 claimed to have been paid by the assessee as commission to one Miss Nellie Melson of Copenhagen, Denmark, on the plea that she had rendered services as a technical consultant in Cairo for securing orders for the export of products of the assessee company in that and other countries. According to the assessee an agreement dated May 5, 1970, was entered into with the lady. The stand of the assessee was that export order under LC 47/8342 worth Rs. 1,06,31,240 was secured through her and on the basis of the agreement she was entitled to a commission of Rs. 5,31,580, worked out at 5 per cent. of the total value of the order. Up to the end of the relevant accounting period, the assessee had effected exports to the tune of Rs. 98,00,000. The Reserve Bank of India had granted permission to the assessee to, remit 5 per cent. of the commission to the lady on FOB value of the goods shipped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an arrangement between both of them in respect of these payments. He, however, refused to divulge the details of his bank account on the plea that this being a foreign income in his hands, under the local laws of his country, it was not necessary to declare the foreign income in his return. The Inspecting Assistant Commissioner was of the view that the assessee's claim deserved to be allowed inasmuch as the expenditure in question had been incurred during the course of the assessee's business. He, accordingly, directed the Income-tax Officer to allow the said expenditure, subject to the payee producing copies of his bank accounts showing receipt of the payments in question. Since the copies of the bank accounts were not produced before the Income-tax Officer, he disallowed the assessee's claim in respect of this assessment year as well. However, on the assessee's appeal, the Appellate Assistant Commissioner allowed the claim on the ground that the payee had been produced and had confirmed the receipt of the payment. The Appellate Assistant Commissioner also observed that under the mercantile system of accounting the liability in this regard had already accrued and the assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Reserve Bank of India. Therefore, the sole question which survives for consideration is whether the assessee's liability to pay commission under the aforementioned agreement and consequently to claim the same as business expenditure while computing the profits and gains of the business for the relevant previous year is to be determined as per the agreement between the parties or it is dependent on the permission of the Reserve Bank of India to remit a particular amount. Whether the assessee is entitled to a particular deduction or not depends on the provisions of law relating thereto and not on his own ipse dixit by making entries in his books of account, depending on his own convenience. Section 145 of the Act, as it existed prior to its substitution by the Finance Act, 1995, with effect from April 1, 1997, provides that income under the head "Profits and gains of business or profession", where the assessee maintains books of account, shall be computed in accordance with the method of accounting regularly employed by the assessee. It is a mandatory provision. Therefore, where an assessee regularly employs a particular method of accounting, his income has to be computed in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e approval of the Central Government was obtained, the appellant company's liability to pay the remuneration of the managing agent arises only when the Government conveys its approval and not prior to that date. Placing strong reliance on the decision in Nonsuch Tea Estate Ltd.'s case [1975] 98 ITR 189 (SC) and a decision of the Bombay High Court in Dorr-Oliver (India) Ltd. v. CIT [1998] 234 ITR 723, it is vehemently submitted by Mr. Khanna, learned counsel for the Revenue, that since in the instant case, under section 9 of the Foreign Exchange Regulation Act, 1973 (for short "the FERA"), there was a restriction on payments to any person resident outside India and no amount could be remitted abroad without the permission of the Reserve Bank of India, no liability to pay commission could arise till such permission was granted and, therefore, the Tribunal was fully justified in restricting the claim of the assessee to the actual amount remitted in terms of the approval. We are unable to persuade ourselves to agree with learned counsel for the Revenue. It is common ground that the agreement under which the commission was sought to be paid did not require approval of the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was entitled to claim deduction on the basis of actual payment on receipt of the Reserve Bank of India's approval, it was held that under the mercantile system of accounting liability accrues and is deductible in the year in which the same is payable and not in the year in which the assessee actually pays it and, further, the procedure for obtaining the permission of the Reserve Bank of India to make payment does not postpone accrual of liability or make it contingent. The decision of the apex court in Nonsuch Tea Estate Ltd.'s case [1975] 98 ITR 189 does not advance the case of the Revenue. As noticed above, in that case there was an absolute restriction against the appointment or reappointment of a managing agent without the approval of the Central Government and, therefore, till such approval had been obtained and granted, there was no question of any liability to pay the remuneration accruing, which is not the case here. Again, there was absolutely no restriction on the assessee entering into agreement with any person resident outside India for rendering of services. The restriction was only limited to the remittances of money abroad without the permission of the Reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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