TMI Blog1991 (6) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ck shops. The total kist payable for those shops was Rs. 24,16,900. The appellant paid only Rs. 10,51,413 as on the last date of the previous year, i.e., March 31, 1982. This amount included Rs. 84,653 being the interest on security deposit. A balance amount of Rs. 13,65,487 towards kist apart from interest of Rs. 1,14,321 was due. The appellant made a provision for these amounts in the account as on March 31, 1982. The Income-tax Officer disallowed the provision stating that the appellant had no liability to pay any further kist as the matter was to be adjudicated afresh by the Kerala Government in view of the decision in Issac v. Assistant Excise Commissioner [1984] KLT 88. The Income-tax Officer disallowed the provision aggregating to Rs. 15,33,264. The assessee appealed before the Commissioner of Income-tax. The Commissioner concurred with the Income-tax Officer and held that there was no further liability for payment of kist as on March 31, 1982. Further, the Commissioner allowed deduction of Rs. 6, 83,250 and Rs. 1,12,990 by way of kist and interest paid by the assessee as per the directions of this court. To that extent, the appeal was allowed. On second appeal, the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in [1984] KLT 88. The recovery of the kist amount due from the assessee in that case was restrained by a writ of prohibition unless and until the quantum thereof is properly determined at a reasonable and fair basis, according to law. That decision was rendered on November 14, 1983. The assessment was made on October 19, 1984. There was thus no liability on the part of the assessee to pay any amount as on March 31, 1982, according to counsel for the Revenue. The liability arises only on determination of the amount and, as and when that amount is determined, that could be claimed as a provision in the year in which such determination is made. But, it is pointed out by learned counsel for the respondent that the assessee was following the mercantile system of accounting and the liability to pay the kist amount was incurred during the year 1981-82. The inclusion of that amount by way of provision for that year is, therefore, permissible, according to counsel. The assessment order does not show the method of accounting nor is any mention made in the order about the method. The appellate order of the Commissioner and the order of the Tribunal is also silent on that aspect. But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed." It is observed that it is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before the higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum, liability, etc. Reference was made to the decision in Pope the King Match Factory v. CIT [1963] 50 ITR 495 (Mad). In that case, a demand for excise duty was served on the assessee. 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. He was objecting to the assessment and seeking to get the order of the Collector of Excise reversed. The Madras High Court held that the assessee incurred an enforceable legal liability on and from the very date on which he received the Collector's demand for payment and that his endeavour to get out of that liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done, the assessee is entitled to claim deduction in respect of the liability to pay the balance kist amount for which provision has been made in the account books. That is the position in spite of the fact that the liability has been disputed by the assessee. Learned counsel has a further contention that the liability is contractual and the provision made for the balance kist amount payable is not an allowable deduction. A contention is seen to have been taken by the State in O. P. No. 2325 of 1981 (Issac Peter's case [1984] KLT 88), that the dispute is in the realm of contract and, therefore, the relief, if any, to which the petitioners are entitled has to be agitated in a civil court without resorting to proceedings under article 226 of the Constitution. After adverting to the arguments advanced on both sides, this court held (at p. 101) : "The position, therefore, is that we find on a proper consideration of the contentions raised by the parties, that the respondents were under statutory obligation to permit the issue of such quantity of arrack in excess of the announced monthly quota as was demanded by the petitioner to meet the local requirements ; the respondents having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on November 14, 1983, and the assessee's accounting year ended on March 31, 1982, i.e., before the judgment in Issac Peter's case [1984] KLT 88. For that reason, the Tribunal would say that the decision of this court was not in force on March 31, 1982. This, no doubt, is an erroneous view. This court has only laid down the law as far as the liability to pay the balance kist amount till the determination of such amounts in accordance with the directions given in the judgment. This court has adopted that judgment in O. P. No. 7250 of 1982 filed by the respondent herein. The Revenue was, therefore, bound to follow the judgment in Issac Peter's case [1984] KLT 88. Still, the provision made in the accounts was found to be allowable on the basis of the decision in Kedarnath's case [1971] 82 ITR 363 (SC). Though the reason stated by the Tribunal is erroneous, the Tribunal was right in relying on the decision in Kedarnath's case [1971] 82 ITR 363 (SC) and finding that the liability to pay the balance of kist and interest was very much there on March 31, 1982. The finding that the liability to pay such amount is not at all obliterated by the Kerala High Court judgment is perfectly justif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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