Cit vs Modern Spinners Ltd.
2005 Latest Caselaw 404 Del

JUDGMENT

Swatanter Kumar, J.

The short question that arises for consideration in the present Appeal is to the interpretation and meaning of the expression 'ascertained liability' in the facts and circumstances of the present case.

2. The assessed filed a return for the assessment year 1995-96 on 24-11-1995 declaring a loss of Rs. 57,99,781. The return was processed under section 143(1)(a) of the Income Tax Act (hereinafter referred to as the Act) without making any adjustment. The assessing officer issued a notice to the assessed under sections 143(2) and 142(1) Along with a questionnaire on 26-9-1996 and the case was taken up for scrutiny. While dealing with some other matters in the order of the assessment, the assessing officer specifically required the assessed to show cause why provisions of interest of Rs. 49.23 lakhs should not be disallowed as the provisions amounted to unascertained liability. After granting opportunity to the assessed, the deduction for the said amount of interest was disallowed by the assessing officer vide his order dated 20-11-1996. Against (his order, the assessed preferred an appeal which was also dismissed by the Commissioner of Income Tax, Appeals, New Delhi vide his order dated 18-8-1998. The view taken by the assessing officer as well as the Commissioner of Income Tax, Appeal, was set aside by the Income Tax Appellate Tribunal upon appeal by the assessed and vide its order dated 12-1-2004 the Tribunal held as under:

2. The assessed filed a return for the assessment year 1995-96 on 24-11-1995 declaring a loss of Rs. 57,99,781. The return was processed under section 143(1)(a) of the Income Tax Act (hereinafter referred to as the Act) without making any adjustment. The assessing officer issued a notice to the assessed under sections 143(2) and 142(1) Along with a questionnaire on 26-9-1996 and the case was taken up for scrutiny. While dealing with some other matters in the order of the assessment, the assessing officer specifically required the assessed to show cause why provisions of interest of Rs. 49.23 lakhs should not be disallowed as the provisions amounted to unascertained liability. After granting opportunity to the assessed, the deduction for the said amount of interest was disallowed by the assessing officer vide his order dated 20-11-1996. Against (his order, the assessed preferred an appeal which was also dismissed by the Commissioner of Income Tax, Appeals, New Delhi vide his order dated 18-8-1998. The view taken by the assessing officer as well as the Commissioner of Income Tax, Appeal, was set aside by the Income Tax Appellate Tribunal upon appeal by the assessed and vide its order dated 12-1-2004 the Tribunal held as under:

We have carefully considered the entire material on record. In view of the clauses (a) to (i) of the agreement dated 31-10-1992, the outstanding amount was to be paid with interest in phased manner. Since the assessed had not complied with the terms of the agreement the concession granted by the bank to (lie assessed was to be withdrawn. In view ofthe same, (he rate of interest on the amount of Rs. 339 lakhs was Rs. 18.5%. The assessed had made provision of interest as per the agreement and not as per the original terms and conditions of the loan. Even if the amount of loan was not paid by the assessed as per the agreement, (lie liability cannot cease to exist. The assessed had provided interest liability only at the of 10 per cent which as per agreement and not as per the original terms and conditions of loan. Therefore, it cannot be treated to be a contingent liability, rather it is an ascertained liability. The assessed cannot be penalized for claiming less interest liability. In view of the above, the arguments of the learned counsel are allowed.

3. It is not in dispute before us that the assessed had taken a loan from the Punjab National bank and was in default of payment of' its dues. The compromise was entered into between the bank and the assessed and it was on 31-10-1992 at the time of the compromise agreement, the total outstanding was Rs. 1165.23 lakhs including an recorded interest of Rs. 915.55 lakhs. This total liability was reduced to Rs. 499 lakhs payable in a phased manner with interest at the rate of 10 per cent per annum on reducing balance. It was also pointed out that the assessed had made payments in terms of this agreement in the earlier financial years and by making a provision for interest at the rate of 10 per cent as a default of, compromise. As noticed in the order of the Commissioner of Income Tax under clause (ii) of the Agreement, in case of delay by a period of one year in payment of respective Installments, interest at the rate of 18.5 per cent shall be charged and if there is a further delay the borrower assessed will not be entitled to the benefits of concessions envisaged in the compromise terms and will be liable to pay the outstanding with further interest at the agreed rate in terms of clause (i) of the agreement.

3. It is not in dispute before us that the assessed had taken a loan from the Punjab National bank and was in default of payment of' its dues. The compromise was entered into between the bank and the assessed and it was on 31-10-1992 at the time of the compromise agreement, the total outstanding was Rs. 1165.23 lakhs including an recorded interest of Rs. 915.55 lakhs. This total liability was reduced to Rs. 499 lakhs payable in a phased manner with interest at the rate of 10 per cent per annum on reducing balance. It was also pointed out that the assessed had made payments in terms of this agreement in the earlier financial years and by making a provision for interest at the rate of 10 per cent as a default of, compromise. As noticed in the order of the Commissioner of Income Tax under clause (ii) of the Agreement, in case of delay by a period of one year in payment of respective Installments, interest at the rate of 18.5 per cent shall be charged and if there is a further delay the borrower assessed will not be entitled to the benefits of concessions envisaged in the compromise terms and will be liable to pay the outstanding with further interest at the agreed rate in terms of clause (i) of the agreement.

4. While relying upon the judgment of the Madras High Court in the case of CIT v. Anamallais Bus Transports (P.) Ltd. (1975) 99 ITR 445. The learned counsel appearing for the appellant department contended that it was under an ascertained liability so as to entitle the assessed for allowance.

4. While relying upon the judgment of the Madras High Court in the case of CIT v. Anamallais Bus Transports (P.) Ltd. (1975) 99 ITR 445. The learned counsel appearing for the appellant department contended that it was under an ascertained liability so as to entitle the assessed for allowance.

5. In the expression 'ascertained liability' the emphasis is on the word 'ascertained'. The word 'liability' is hardly of any consequence as liability to pay is an admitted fact. Only question before the court is whether the amount reflected by the assessed was, or was not, an ascertained amount. The word 'as certain' has been defined in the Black's Law Dictionary VIth Edition 'to estimate and determine; to clear of doubt or obscurity. To ensure as a certainty'. Though this word is capable of two meanings - one a strict and another a popular meaning. In the first it may mean 'to make certain' while in the latter' to get to know'. Once a matter was ascertained it would be ascertained. Subject or liability in the present case an admitted document was the compromise deed under which the assessed had shown his liability for the previous years and which was accepted as a result. of default or delay. The liability under the terms and conditions of compromise cannot be wiped out. It was not a unilateral act on the part of the assessed but was a bilateral consented action on behalf of the parties which was of binding nature in the terms of agreement. As such it cannot be termed as an unascertained liability. The reliance by the learned counsel appearing for the appellant on the case of Anamallais Bus Transports (P.) Ltd.'s case (supra) is misplaced inasmuch as, even there it was held that making a provision for bonus would be a contingent liability. It was further clarified that if the worker had raised a claim and the assessed had admitted the liability to the extent of provision made, then, it would be a matter entitled to the deduction. But a mere provision by the assessed, unilaterally for bonus, would not entitle him for the deduction. Even on the ratio of this judgment the assessed in the present petition would be en titled to deduction because demand of the bank has been admitted by him and a compromise deed is executed which has clauses which would remain in force irrespective of its duration. Thus, the reasoning given by the Commissioner (Appeals) has been correctly rejected by the Tribunal.

5. In the expression 'ascertained liability' the emphasis is on the word 'ascertained'. The word 'liability' is hardly of any consequence as liability to pay is an admitted fact. Only question before the court is whether the amount reflected by the assessed was, or was not, an ascertained amount. The word 'as certain' has been defined in the Black's Law Dictionary VIth Edition 'to estimate and determine; to clear of doubt or obscurity. To ensure as a certainty'. Though this word is capable of two meanings - one a strict and another a popular meaning. In the first it may mean 'to make certain' while in the latter' to get to know'. Once a matter was ascertained it would be ascertained. Subject or liability in the present case an admitted document was the compromise deed under which the assessed had shown his liability for the previous years and which was accepted as a result. of default or delay. The liability under the terms and conditions of compromise cannot be wiped out. It was not a unilateral act on the part of the assessed but was a bilateral consented action on behalf of the parties which was of binding nature in the terms of agreement. As such it cannot be termed as an unascertained liability. The reliance by the learned counsel appearing for the appellant on the case of Anamallais Bus Transports (P.) Ltd.'s case (supra) is misplaced inasmuch as, even there it was held that making a provision for bonus would be a contingent liability. It was further clarified that if the worker had raised a claim and the assessed had admitted the liability to the extent of provision made, then, it would be a matter entitled to the deduction. But a mere provision by the assessed, unilaterally for bonus, would not entitle him for the deduction. Even on the ratio of this judgment the assessed in the present petition would be en titled to deduction because demand of the bank has been admitted by him and a compromise deed is executed which has clauses which would remain in force irrespective of its duration. Thus, the reasoning given by the Commissioner (Appeals) has been correctly rejected by the Tribunal.

6. Further more, the reasoning given by the Tribunal cannot be faulted with, even on the plain reading of the relevant provisions. The interpretation given to the expression 'ascertained liability' is in consonance with the scheme of the Act. The present appeal thus raises no substantial question of law in terms of the principle laid down by different judgments including the Division Bench Judgment of (his court in the case of CIT v. S.R. Fragnances Ltd. (20041270 ITR 560.

6. Further more, the reasoning given by the Tribunal cannot be faulted with, even on the plain reading of the relevant provisions. The interpretation given to the expression 'ascertained liability' is in consonance with the scheme of the Act. The present appeal thus raises no substantial question of law in terms of the principle laid down by different judgments including the Division Bench Judgment of (his court in the case of CIT v. S.R. Fragnances Ltd. (20041270 ITR 560.

7. For the reasons aforestated we find no merit in this appeal, the same is dismissed.

7. For the reasons aforestated we find no merit in this appeal, the same is dismissed.