TMI Blog1998 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 19,81,625 being part of the compensation and fees payable to Dorr Oliver Inc. of U. S. A. under the agreement on January 1, 1959, was not admissible as a deduction in the computation of the assessee's total income ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the entire amount of Rs. 28,60,361 being compensation and fees payable to Dorr Oliver Inc. of U. S. A. was deductible in arriving at the assessee's total income ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is not entitled to the surtax liability being allowed as a deduction in the computation of its income ?" Learned counsel for the parties a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said agreement, a sum of Rs. 28,60,361 became payable to Dorr Oliver Inc. as compensation and fees for the accounting year ending on September 30, 1974, relevant to the assessment year 1975-76. The assessee claimed the aforesaid amount as a deduction in the computation of the total income for the assessment year 1975-76. The Inspecting Assistant Commissioner of Income-tax, Foreign Companies Range-I, Bombay, disallowed the assessee's claim on the ground that no specific approval of the Government of India had been received for the same as required by law. He, however, observed that the position would be reviewed as and when the necessary Government sanction was received. The assessee carried the matter in appeal before the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing September, 1974 (which is the previous year relevant to the assessment year 1975-76), worked out to Rs. 8,78,736. We have perused the facts of the case. Admittedly, the amount claimed as a deduction was payable to Dorr Oliver Inc. of U. S. A. under an agreement dated January 1, 1959. The said agreement was a continuing agreement and the payments which fell due from time to time were duly approved by the Government of India and the Reserve Bank of India. On January 9, 1970, the Reserve Bank wrote to the assessee that the collaboration agreement had almost run for a period of 10 years. The assessee-company was advised by the Reserve Bank to arrange to terminate the said collaboration agreement and in case it wanted to continue the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the Foreign Exchange Regulation Act, 1973, no person in, or resident in, India could make any payment to or for the credit of any person residing outside India, or make any payment to or for the credit of any person by or on behalf of any person residing out of India or place any sum to the credit of any person outside India, etc., without specific sanction and permission of the Reserve Bank of India. The Commissioner (Appeals) also observed that in view of the refusal of the Government of India to extend its permission beyond June 30, 1972, the agreement between the assessee-company and the non-resident company was an unenforceable contract and no liability could arise out of such contract which could be claimed as a deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the assessee was not entitled to get deduction of the amount of Rs. 19,81,625 for the year under consideration. Law is well-settled by the decision of the Supreme Court in Nonsuch Tea Estate Ltd. v. CIT [1975] 98 ITR 189, that where accrual of liability is dependent upon some approval and/or sanction of the statutory authority, it will accrue or arise only on such approval. In the instant case, the uncontroverted factual position is that accrual of liability was dependent upon the approval and/or sanction of the Government of India and the Reserve Bank of India. There is also no dispute about the fact that in the year under consideration no such sanction was received. That being so, the ratio of the above decision of the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or arisen only in the years under consideration and the same was, therefore, allowable as a deduction in the computation of income of that year." Following the ratio of the above decisions, it is clear that in the instant case, the liability of the assessee to pay the compensation to Dorr-Oliver Inc., Stamford, U. S. A., accrued only on the grant of approval by the Government of India in the year 1980. The liability cannot be said to have arisen from any date prior to the date of approval of the Government of India as the Foreign Exchange Regulation Act contains an absolute prohibition against such accrual. Learned counsel for the assessee referred to the decision of the Supreme Court in Coca-Cola Export Corporation v. ITO [1998] 231 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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