TMI Blog1991 (10) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the Tribunal was right in holding that 10 per cent. of the export price did not constitute income of the assessee for the assessment year 1980-81 ? " The assessee is an exporter of tea. During the previous year relevant to the assessment year 1980-81, the assessee exported tea to Sudan. It had borrowed from the Bank of Baroda for exporting tea. Interest was payable to the bank up to the close of the previous year ending on December 31, 1979. The Income-tax Officer found that, out of Rs. 4,23,490 debited towards interest and bank charges, a sum of Rs. 3,40,000 was only a provision made by the assessee for interest which it may become liable to pay during the subsequent years. The case of the assessee was that Sud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bill, 90 per cent. of it alone constituted the real income. The Commissioner of Income-tax (Appeals) did not accept the contention of the assessee and sustained the order of disallowance made by the Income-tax Officer. On second appeal, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals). It is thereafter, that the two questions hereinbefore mentioned were referred to us. We heard counsel Mr. P. C. Chacko for the assessee and Mr. P. K. R. Menon for the Revenue. The Income-tax Officer noted that the claim to the extent of Rs. 3,40,000 was only a mere provision on account of interest which the assessee may become liable to pay on the outstanding amounts to the Bank of Baroda in future. The Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed accounts on mercantile basis, deduction can be undoubtedly allowed. But the Commissioner of Incometax (Appeals) also found that the amount of Rs. 3,40,000 sought to be deducted by the assessee is a contingent liability of a year other than the year of account. The appellate authority also found that no interest to the bank is outstanding as on December 31, 1979, and interest, if at all, will be only for future years. The same view has been upheld by the Tribunal also. The question argued before the Tribunal related to the real nature and character of the claim of deduction. The claim was considered on the basis of interest or amount covering the risk. As the assessee's representative failed to tell them what exactly is the nature of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date. In Pope the King Match Factory v. CIT [1963] 50 ITR 495 (Mad), a demand for excise duty was served on the assessee and though he was objecting to it and seeking to get the order of the Collector of Excise reversed, he debited that amount in his accounts on the last day of his accounting year and claimed that amount as a deductible allowance on the ground that he was keeping his accounts on the mercantile basis. The Madras High Court had no difficulty in holding that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an accrued liability and the estimated expenditure which would be incurred in discharging the same could be deducted from the profits and gains of the business and the amount to be expended could be debited in accounts maintained in the mercantile system of accounting before it was actually disbursed. This and other decisions cited by counsel for the assessee only laid down the principle that accrued liabilities can be deducted when the assessee keeps mercantile system of accounting, even though the amount is not actually spent. These decisions have no application to the facts in question as there is a clear finding that no part of the amount of Rs. 3,40,000 accrued by way of interest or otherwise as a liability to the bank as on Decembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there will be a long delay and, therefore, an interest liability ought to have been conceded as a matter of trade practice by the income-tax authorities. That, according to counsel, is the basis for the real income concept for taxation purpose. We do not find any substance in this contention on the facts of this case. The assessee, admittedly, maintains the mercantile basis of accounting and that means that all the consequences of that method of accounting will follow. The income accrued will be deemed to have been received and the liability accrued will be deemed to have been spent and, on that basis, the taxable income is arrived at. On the facts of this case, we do not find any justification for the claim of deduction of Rs. 3,40,000 bei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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