TMI Blog1993 (10) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs.6,257 collected by the assessee as cess from its customers on sale of oil could not be assessed as a trading receipt ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 17,316 should be treated as a business loss and not speculation loss ?" The brief facts of the case are that the assessee claimed bad debts of Rs. 52,105 in the account of Messrs. Radheyshyam Ramkishan, Nadbai, which was the proprietary concern of Shri Radheyshyam. This concern was doing commission agency in food grains, etc. The assessee was purchasing oil seeds through this party. In the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed in the court, it could not be considered that the debt has become bad. The certificate of the chairman of the municipality was not relied upon. It was also observed that since no insolvency proceedings were taken by the parties, the debt could not be considered to be bad. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer. In the second appeal, the Tribunal held that the debt had become bad in the accounting period relevant to the assessment year under appeal. So far as the first question is concerned, it has been provided under section 36(1)(vii) that subject to the provisions of sub-section (2) the amount of any bad debt or part thereof which is established to have become bad debt in the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be allowed as a bad debt. So far as the next question is concerned, whether the amount of Rs. 6,157 collected by the assessee as cess from its customers on sale of oil could not be assessed as a trading receipt, there was a dispute with regard to levy of cess on sale of oil and the amount in question was not paid to the Government and was credited to the Amanath account. The assessee claimed that the said amount is not a trading receipt and represented the liability of the assessee which it would have to fulfil in case the dispute was decided against the assessee. Reliance was placed on the decisions of the Bombay High Court in the cases reported in J. K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 and Gannon Dunkerley and Co. Ltd. v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cess and if the accounts are maintained on mercantile basis, the liability being statutory, could be allowed. If the accounts are maintained on cash basis, then the same could be claimed in the year when actual payment is made. The amount was received by the assessee in the course of his business and is in the nature of a revenue receipt. From the facts of this case, it is found that the amount was not deposited with the Government and a dispute was being raised about this payment. It was held by the apex court in the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 that where the assessee follows the mercantile system of accounting, the liability which has accrued can be claimed. The liability which has been claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these cases delivery of the goods had not taken place. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer. In the second appeal, the Tribunal held that the payment in question represents damages for breach of contract which did not fall within the purview of section 43(5) of the Income-tax Act and the said section is applicable only in case of settlement of the contract where the payment is made without delivery of the goods. The Tribunal held that in the present case there was non-performance of the contract either because of the closure of loading by the railway authorities or on account of non-availability of wagons and, therefore, the breach of the contract took place for which the assessee had to pay damag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract in a transaction for which the payment is made. If the payment is by way of damages and not by way of settlement of a contract, then the question of actual delivery or transfer of the goods would be irrelevant. The law on this point is well-settled by the judgment of the apex court in the case of CIT v. Shantilal P. Ltd. [1983] 144 ITR 57 and in view of the finding recorded by the Tribunal that the payments have been made by way of damages for non-performance of the contract and that non-performance of the contract was for reasons beyond the control of the assessee on account of closure of loading by the railway authorities or on account of non-availability of wagons and for which relevant documents were produced before the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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