TMI Blog2001 (6) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... tory liability nor a liability in presenti but a contractual or de futuro liability?" The assessee is a limited company and engaged in the manufacture and sale of paper. The assessment year involved is 1980-81 for which the relevant year ended on March 31, 1980. The main raw materials used by the applicant/assessee for manufacture of paper are eucalyptus wood and pine wood. The said raw materials are obtained from the forests of the Government of Uttar Pradesh. The terms and conditions on which such raw materials are supplied by the Government of Uttar Pradesh are that the applicant would pay the royalty as would be determined by the Government. Initially, royalty on eucalyptus wood supplied by the Government of Uttar Pradesh was fixed at Rs.90 per volumetric ton (hereinafter referred as V. M. T.). In terms of the Government order, the said royalty was revisable every two years. During the relevant previous year the applicant/assessee received an intimation dated April 13, 1979, from the Government of Uttar Pradesh about the revision of royalty from the last fixed rate of Rs.90 per V. M. T. to Rs.216 and Rs.290 per V. M. T. On representations made by the applicant, the said rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Learned counsel for the assessee, Shri Bajoria, submits that the royalty payable by the assessee is a statutory liability in view of the provision of section 82 of the Indian Forest Act, 1927. He further submits that royalty is a tax as per the latest decision of the Supreme Court in the case of India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690. When it is a statutory liability whether the assessee has challenged or disputed that liability in the High Court does not make any difference when the assessee is following the mercantile system of accounting. He supported the view taken by the Commissioner of Income-tax (Appeals). On the other hand, learned counsel for the Revenue, Shri Mallick, submits that the royalty payable by the assessee is a contractual liability and when it is disputed it cannot be allowed when the dispute is pending in the court. When the hearing was concluded the liberty was also given to the parties to file the written arguments if they so desire. Learned counsel for the assessee filed the written submissions. No written submissions are filed by learned counsel for the Revenue till date. Therefore, we have to consider the arguments and written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-1978 to 30-9-1978 at Rs. 20 (Rs. 110-90) per V. M. T. 5,82,393 From 1-10-1979 to 31-3-1979 at Rs. 11 (Rs. 110- 99) per V. M. T. 5,57,027 From 1-4-1979 to 31-3-1980 at Rs. 110 per V. M. T. (-)80,90,495 1,20,77,832 --------------- 1,17,20,456 ------------------------------------------------------------------------------------------------ Balance amount not provided for in the accounts but claimed in the assessment year 1980-81 by the appellant-Not allowed by Income-tax Officer but allowed by the Commissioner of Income-tax (Appeals). The assessee has disputed these higher rates, that is, Rs. 145 per V. M. T. and Rs. 156 per V. M. T. i n a writ filed before the Allahabad High Court. But mere dispute of the liability does not deprive the assessee to claim that liability as deduction when the assessee is following the mercantile accounting system and it is a statutory liability. That has been concluded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue before the Madhya Pradesh High Court was whether royalty is a tax. Following the decision of their Lordships in India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690 (SC), the Madhya Pradesh High Court has taken the view that royalty is a tax. The Madhya Pradesh High Court has observed at page 248 as under: "In paragraph 31 of the judgment, their Lordships, after referring to the views expressed by the Rajasthan, Punjab, Gujarat and Orissa High Courts that the royalty cannot be said to be a tax because this is something which is being paid in lieu of minerals extracted, in paragraph 34, concluded by saying that the royalty is a tax and thus the decisions of the High Courts cannot hold good." When the royalty is treated as a tax that cannot be a contractual liability. The view taken by the Madhya Pradesh High Court in Gorelal's case [1998] 232 ITR 246 has been affirmed by their Lordships of the Supreme Court reported in Gorelal Dubey v. CIT [2001] 248 ITR 3. Their Lordships in para. 3 observed that the Constitution Bench judgment in India Cement Ltd.'s case [1991] 188 ITR 690 lays down the law, namely, that royalty is tax, and it is a tax for all purposes including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout approaching the court. It is also pertinent to note that in the case in hand the Government is the authority to decide the rate of royalty and that can be revised by the Government also, the assessee can only make request for rate of royalty or can approach the court. If it is a contractual liability, how the power of fixation of rate of royalty can be with Government only. On these peculiar facts of this case, the royalty liability cannot be taken as contractual liability. When the royalty has been held as a tax by the apex court and rate of royalty can be fixed unilaterally by the State Government and its recovery also can be made as in the case of land revenue, in our view it cannot be treated as a contractual liability. It is a statutory liability and once it is a statutory liability whether it is provided for in the books or not does not make any difference. We also found that the deduction has also been denied, as liability is uncertain. We do not understand once it is a statutory liability and a fixed amount of rate has been given in the Government order how it can be an uncertain liability. It is a certain and statutory liability. The Tribunal has wrongly reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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