Income Tax Appellate Tribunal - Kolkata
Income-Tax Officer vs Asiatic Wires Ltd. on 26 August, 1986
Equivalent citations: [1986]19ITD611(KOL)
ORDER
A.K. Das, Judicial Member
1. By this appeal the department challenges the order of the Commissioner (Appeals) allowing the assessee's claim for deduction of Rs. 1,72,500 under an award dated 16-5-1980. It is opposed by the assessee-company.
2. The assessee-company manufactures and sells different types of wires. During the previous year relevant to the assessment year under consideration the assessee-company entered into a contract with the Haryana State Electricity Board for supply of 880 M.Tons of galvanised wires of a particular variety. Out of the said quantity, the assessee-company delivered only 464 M. Tons of wires. Disputes . arose between the parties on account of non-delivery of remaining 416 M. Tons of wires, and ultimately the dispute was referred to the arbitration of Mr. O.P. Khaitan and Mr. J.C. Kalra. They, however, differed in their opinion and as such, the matter was referred to. Mr. A.B.N. Sinha, retired Judge of the Patna High Court as Umpire. But he died after some proceedings had taken place. So the matter was referred to Mr. H.R. Khanna, a retired Judge of the Supreme Court. By his award dated 16-5-1980, the Umpire held that the claimant, Haryana State Electricity Board, was entitled to recover Rs. 1,72,500 as damages from the company. The award was read over and announced on the same day to the counsels for the parties each of whom was given one copy of the award certified by the Umpire. He directed the award be filed in the Court of Sub-Judge, 1st Class, Chandigarh by his secretary Mr. R.K. Chawla on 23-5-1980 or such other date as may be fixed by the Umpire. The award was actually filed in the Court of the Sub-Judge, on 23-5-1980 (vide Umpire's letter dated 29-12-1983). The ITO asked the assessee-company to inform whether a notice under Section 14(2) of the Arbitration Act, 1940 in connection with the award was received by the assessee-company and whether any decree was passed under Section 17 of the said Act thereof along with the number of the case. The assessee-company submitted that no notice under Section 14(2) or decree under Section 17 was received by it. It also pleaded its inability to state the number of the case. The ITO was of the opinion that the award was at best an evidence of a contingent liability and the liability to pay would arise only on passing of the decree under Section 17. In this view of the matter he rejected the claim of the assessee-company for deduction of the said amount of Rs. 1,72,500. The IAC also confirmed the opinion of the ITO in his direction under Section 144B of the Income-tax Act, 1961 ('the Act'). On appeal, the Commissioner (Appeals) was of the opinion that 'as soon as the award under the contract was made by the arbitrator, it had become an ascertained and enforceable contractual liability'. As such, he held that the assessee-company was entitled to the deduction and directed the ITO to allow the assessee-company's claim for deduction of Rs. 1,72,500. Being aggrieved, the department preferred this appeal.
3. The departmental representative contended that under the provisions of Section 17 unless a judgment is pronounced in accordance with the award and a decree is made, the award remains unenforceable and as such the liability, if any, under the award was a contingent liability. In support of his contention he relied on Section 17 and the decision in the case of A.P.S. Cold Storage & Ice Factory v. CIT [1979] 119 ITR 709 (All.). He also submitted that the decision in the cases of CIT v. Mathulal Baldeo Prasad [1961] 42 ITR 517 (All), CIT v. Shewbux Jahurilal [1962] 46 ITR 688 (Cal.) and Satish Kumar v. Surinder Kumar AIR 1970 SC 833 did not apply in the facts of the present case under appeal. These contentions were opposed by the authorised representative for the assessee who contended that the liability accrued when the award was made on 16-5-1980. For this purpose he relied on clause 10 of article III of the contract between the Haryana State Electricity Board and itself and Sections 17, 30 and 33 and Rule 7 of the First Schedule of the Arbitration Act. He also relied on the decisions in the cases of Mathulal Baldeo Prasad {supra) and Satish Kumar (supra). He made a passing reference to the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC).
4. We have carefully examined the provisions of the Arbitration Act and the decisions relied upon by the authorised representatives for the parties. We have also carefully examined the materials on record, facts and circumstances of the case. On such examination we are unable to agree with the authorised representative for the assessee-company that it accepted the award made by the Umpire. Clause 10 of article III relied upon by the authorised representative for the assessee does not throw any light upon the point in issue between the parties. Sub-clause (a) thereof recited that the provisions of the Arbitration Act and the rules thereunder shall apply to the instant contract and that the decision of the arbitrators or the Umpire shall be final. This is in accordance with the provisions of the said Act itself. As such, it does not advance the case of the assessee-company.
5. There is no doubt that Rule 7 of the First Schedule lays down that 'the award shall be final and binding on the parties and persons claiming under them respectively'. But this does not provide that the award though final shall become executable or enforceable as soon as it is made as contended by the authorised representative for the assessee. Section 30 enumerates the grounds on which an award can be set aside. Section 33 lays down the manner for challenging the existence or validity of an arbitration agreement or award, or for determining the effect thereof. But Section 17 lays down what shall follow on filing of an award in the Court. The said section runs as follows :
Where the Court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or set aside the award, the Court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with, the award.
6. In the instant case, there is no allegation that the award or any matter therein has been remitted back to the arbitrators or Umpire or that it has been set aside. We have already stated that the notice of the filing of the award had not been served on the assessee-company. It is also not disputed that the judgment has not been pronounced in accordance with the award and that no decree has been made. Under Section 119(b) of the Limitation Act, 1963, limitation for filing 'an application to set aside an award, or to get an award remitted for reconsideration by the arbitrator or umpire, must be filed within 30 days from the date of the service of the notice of the filing of the award'. In the instant case admittedly such notice had not been served. As such the parties thereto, i.e., the assessee-company and the Board still retain the right to file such application. We have already stated that Rule 7 of the First Schedule provides that the award shall be final and binding on the parties and their representatives, but it does not lay down that it becomes enforceable without a judgment having been pronounced and decree made in accordance with Section 17. It is to be remembered that under Section 15 of the Indian Arbitration Act, 1899, the award itself was enforceable. Section 15 runs as follows :
Award when filed to be enforceable as a decree.-(1) An award on a submission, on being filed in the Court in accordance with the foregoing provisions, shall (unless the Court remits it to the reconsideration of the arbitrators or umpire, or sets it aside) be enforceable as if it were a decree of the Court.
(2) An award may be conditional or in the alternative. So under Sub-section (1) of Section 15 of the said Act the award becomes enforceable as a decree of the Court unless it was remitted or set aside.
Under the provision thereof it was not necessary that a judgment was to be pronounced in accordance with the award or a decree to be made for enforcement of the award. But the position changed with the enforcement of the Code of Civil Procedure, 1908. Paragraph 16 of the Second Schedule of the said Code provided as follows :
Judgment to be according to award.-(1) Where the Court sees no cause to remit the award or any of the matter referred to arbitration for reconsideration in manner aforesaid, and no application has been made to set aside the award, or the Court has refused such application, the Court shall, after the time for making such application has expired, proceed to pronounce judgment according to the award.
(2) Upon the judgment so pronounced a decree shall follow, and no appeal shall lie from such decree except insofar as the decree is in excess of, or not in accordance with, the award.
But after the coming into operation of the Arbitration Act, the matter no doubt is covered by Section 17. Under the said section when a award is filed in the Court, a notice of filing of the award is to be served on the parties who are entitled to file an application for remitting or setting aside the award within 30 days from the date of service of the said notice. In the absence of such an application or in the event of its dismissal a judgment is to be pronounced in accordance with the award, and a decree follows the judgment so pronounced. Only thereafter the decree can be executed in accordance with the provisions of the Code of Civil Procedure. So there cannot be any doubt that under the present Act, an award is not enforceable till a judgment is pronounced as was the situation under Section 15 of the Indian Arbitration Act. If the Legislature desired that the award shall be enforceable, we do not find any reason why the language of Section 15 would have been changed and the present language adopted both in the Code of Civil Procedure, and in the present Act. In similar circumstances, the Allahabad High Court held in the case of A.P.S. Cold Storage & Ice Factory (supra) that 'in the present case, although the Arbitrators had given their award, it was not enforceable against the assessee, as it had not been made a rule of the Court, and no decree had been prepared on its basis. It is settled law that till such time that the award is not made a rule of the Court, and a decree obtained on its basis, it cannot be enforced against the party against whom it had been made'. This decision is the authority on the point that the award is not enforceable till the award is made rule of the Court and the decree is passed.
7. On the other hand, the case of Mathulal Baldeo Prasad (supra) has been dissented from the case of A.P.S. Cold Storage & Ice Factory (supra). It may be mentioned that the point for decision in Mathulal Baldeo Prasad's case (supra) was not the point involved in this appeal, i.e., whether the liability under the award is enforceable on making of the award or on pronouncement of a judgment followed by a decree by the Court in which the award has been filed. In the said case the point for decision was whether the liability arose in the assessment year when the loss was incurred or in the assessment year the award was passed and the loss was written off by the assessee. Similarly, the question for decision in the case of Shewbux Jahurilal (supra) was whether the liability determined under the award was admissible for deduction in the assessment year when loss was incurred or in the assessment year the amount so determined was paid. It has to be mentioned that in the said case the award was filed in the High Court and was confirmed by it previous to the date of payment of the amount. There is no doubt that the decision in the case of Kedar Nath Jute Mfg. Co. Ltd. (supra) does not deal with. the enforceability of an award as is the dispute in the present appeal.
8. The authorised representative for the assessee drew out attention to the following observation of the Supreme Court in the case of Satish Kumar (supra) :
... In our opinion this judgment lays down that the position under the Act is in no way different from what it was before the Act came into force, and that an award has some legal force and is not a mere waste paper. If the award in question is not a mere waste paper but has some legal effect it plainly purports to or affects property within the meaning of Section 17(1)(b) of the Registration Act." (p. 836) But it has to be mentioned that the question in the said case was 'whether an award given under the Act on a private reference requires registration under Section 17(1)(b) of the Indian Registration Act, if the award effects partition of immovable property exceeding the value of Rs. 100' as stated by the Court itself in paragraph 6. But even though in the majority judgment delivered by Sikri, J. (on behalf of himself and Bachawat, J.) it lays down that an award has some 'legal force', it does not lay down that it becomes enforceable without it being made a rule of the Court. On the other hand, in his separate but concurring judgment Hegde, J. definitely observed that 'the award does create rights in that property but those rights cannot be enforced until the award is made a decree of the Court'. [Emphasis supplied] So even the above judgment of the Supreme Court does not support the arguments of the authorised representative for the assessee. On the other hand, it clearly states that the right under the award cannot be enforced until it has been made a decree of the Court.
9. For the reasons stated above, we are of the opinion that the Commissioner (Appeals) was not justified in his finding that 'as soon as the award under the contract was made by the arbitrators it had become an ascertained and enforceable contractual liability', and we also hold that the ITO was justified in rejecting the claim of the assessee-company. As such, we set aside the order of the Commissioner (Appeals) and restore that of the ITO rejecting the assessee's claim of Rs. 1,72,500.
10. As a result, the appeal is allowed.