TMI Blog1976 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi, U.P. and Bihar. The company disputed its liability to pay commission and remuneration as claimed by the selling agent and the said dispute was referred to the arbitration of the Bengal Chamber of Commerce in term of the arbitration clause contained in the agreement. Thereafter, the agreement was terminated by the company on July 31, 1951. An award was made against the company on March 14, 1960, for Rs. 1,05,285.43 with interest thereon at 5 1/2% from January 19, 1959, up to the date of the award. The company then transferred a part of the said interest to the interest account of the earlier year, and Rs. 1,08,370.55 as the principal sum and the balance interest to the profit and loss account of the year ending on July 31, 1960. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arisen in the earlier year in view of its mercantile system of accounting ; in any event, the liability for interest under the award had arisen from year to year and, therefore, it should be held that at least a part of the said liability for interest had arisen in the earlier year ; and since the agreement was not subsisting in the accounting year, it should be held that the entire liability of the company under the award was referable to the earlier year in which the contract was subsisting. Mr. Sengupta has cited those cases which were discussed by Mr. Justice A. N. Sen in his judgment dated January 9, 1973, in Income-tax Reference No. 5 of 1967, intituled Commissioner of Income-tax v. Hindusthan Housing and Land Development Trust Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " profits and gains " must be understood in its commercial sense and if a legal liability has been definitely incurred in the accounting year, it must be allowed in that year. (Vide Calcutta Co. Ltd. v. Commissioner of Income-tax [1959] 37 ITR 1 (SC) at page 8 of the report). But if the liability is contingent and does not raise any definite obligation in the accounting year, it cannot be the subject-matter of a deduction even under the mercantile system of accounting--See Indian Molasses Co. (P.) Ltd. v. Commissioner of Income-tax [1959] 37 ITR 66 (SC) at page 78 of the report, and Commissioner of Income-tax v. Gemini Cashew Sales Corporation [1967] 65 ITR 643 at page 650 of the report. An allowable deduction cannot be disallowed merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at between the parties and the amount payable by the assessee was settled at Rs. 1,35,000 and was made payable in February, 1950. The assessee paid the amount in February, 1950, and claimed it as a loss in the accounting year 1950-51. It was held by the court that the liability of the assessee was contingent in the earlier years and as it was finally determined by the award in the accounting year, it was an allowable deduction under the Act. This case was followed by Mr. Justice A.N. Sen in the case of Commissioner of Income-tax v. Hindusthan Housing Land Development Trust Ltd. [1977] 108 ITR 380 (Cal). In that case an additional compensation was awarded by the Land Acquisition Collector and it was held by the court that the award had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e record to show that any such agreement was arrived at and, therefore, it must be be held that the liability of the company was a contingent or an inchoate liability in the earlier year and it was finally determined by the said award in the accounting year. Accordingly, it must also be held that the company had incurred a business liability not in the earlier year but in the accounting year. The company's case on interest is stronger than the principal amount. The agreement between the parties is wholly silent on interest. Hence, the company had no liability to pay any interest to the selling agent under the agreement. The selling agent was also not entitled to any interest under any statute. It was only the arbitrators who could, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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