Gujarat High Court
Income Tax Officer Ward 49(2) vs M/S. Punjab Steel Rolling Mills ... on 1 March, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, Z.K.Saiyed
O/TAXAP/223/2007 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 223 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
==========================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
==========================================================
INCOME TAX OFFICER WARD 49(2), BARODA....Appellant(s)
Versus
M/S. PUNJAB STEEL ROLLING MILLS (BARODA) PVT. LTD.....Opponent(s)
==========================================================
Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1
==========================================================
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
Date : 01/03/2016
Page 1 of 9
HC-NIC Page 1 of 9 Created On Fri Mar 04 01:17:50 IST 2016
O/TAXAP/223/2007 JUDGMENT
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. This appeal is filed by the Revenue challenging the judgment of Incometax Appellate Tribunal ('Tribunal' for short) dated 9.6.2006. While admitting the appeal following substantial question of law was framed.
"Whether the ITAT was right in law and on facts in deleting the addition of Rs.3,67,18,706 made by the CIT u/s.263 of the IT Act, 1961 for A.Y. 200203, when the contractual liability has been finally settled between the Assessee and the ONGC in the financial year 200203 relevant to A.Y.200304?"
2. Brief facts are as under : The respondent - assessee is a company registered under the Companies Act. For the assessment year 20022003 the assessee had filed its return of income which was taken in scrutiny by Assessing Officer. The Assessing Officer passed order of assessment on 28.5.2005 determining total loss of the assessee at Rs.2.63 crores (round about).
3. In the return assessee had claimed deduction of Rs.3.67 crores (round about) towards interest liability payable to ONGC. According to the assessee, regarding the price of gas rate at which supplied by ONGC, there were multiple disputes. Pending such proceedings Page 2 of 9 HC-NIC Page 2 of 9 Created On Fri Mar 04 01:17:50 IST 2016 O/TAXAP/223/2007 JUDGMENT before the Supreme Court, ONGC was precluded from recovering revised charges. The Supreme Court ultimately ruled in favour of ONGC and thereupon the assessee was liable to pay the differential charges. However, in such judgment there was no mention about charging of interest on delayed payment. When therefore ONGC demanded interest, the issue once again reached the Supreme Court. The Supreme Court in the judgment dated 26.7.2001 reported in 2001 (Supp) 1 SCR held that the asseessee was liable to pay interest as demanded by ONGC.
4. During the financial year relevant to the assessment year 20022003 the assessee had debited such interest liability of Rs.3.67 crores in its profit and loss account and accordingly claimed the same on the principle of mercantile accounting. The assessing officer allowed such claim. However, the Commissioner of Incometax was of the opinion that the same was wrongly granted, since the liability to pay such interest did not crystallize during the said year. He, therefore, after putting the assessee to notice revised the order of assessment under his order dated 31.1.2006 and disallowed the claim of interest. Before the Commissioner the assessee had pointed out that subsequent to the judgment of the Supreme Court dated Page 3 of 9 HC-NIC Page 3 of 9 Created On Fri Mar 04 01:17:50 IST 2016 O/TAXAP/223/2007 JUDGMENT 26.7.2001 the assessee company alongwith the Association of Natural Gas Consumer Industry of Gujarat had made representation to ONGC for a fair settlement on the question of interest. Based on such negotiations the ONGC had under a letter dated 17.4.2002 and made a conditional offer of payment of simple interest instead of compound interest, provided the entire liability is discharged in one single installment within 60 days from the date of acceptance of the offer. The Board of Directors of the Company had accepted such offer on 17.7.2002. The liability of interest of Rs.3.67 crores was work out as simple interest and was relatable to the judgment of Supreme Court dated 26.7.2001. The Commissioner, however, observed that the interest payable to ONGC was not a statutory liability and the same can be stated to have crystallized only in April, 2002 and cannot be stated to have crystallized before April, 2002 when the ONGC made a revised offer which the assessee later on accepted.
5. The assessee carried the matter in appeal before the Tribunal. The Tribunal by the impugned judgment reversed the decision of Commissioner of Incometax. The Tribunal relied on the decision of this Court in case of Alembic Chemical Works Ltd. vs. Deputy Page 4 of 9 HC-NIC Page 4 of 9 Created On Fri Mar 04 01:17:50 IST 2016 O/TAXAP/223/2007 JUDGMENT Commissioner of Incometax, 266 ITR 47 and observed that the claim of interest was crystallized by virtue of the decision of the Supreme Court rendered on 26.7.2001. As per ONGC such interest had to be computed on compounded basis, whereas as per the assessee the simple interest was to be paid which was worked out at Rs.3.67 crores. Thus, there was no dispute as regards the assessee's liability for interest amount of Rs.3.67 crores. The only dispute which lingered on till April, 2002 was whether the assessee would pay compounded interest or simple interest. The Tribunal observed that the CIT would have been justified had the assessee claimed compound interest of Rs.21.88 crores during the year under consideration, since the same was settled only in April, 2002.
6. It is this judgment the revenue has challenged in this appeal. The learned counsel Shri Parikh for the department submitted that the liability to pay interest was not a statutory liability and in the present case such liability got crystallized only upon the ONGC offering revised terms of payment to the assessee in April, 2002 which the Board of Directors of the Company accepted in July, 2002. Till then the liability was merely a contingent liability. Since such liability was not crystallized Page 5 of 9 HC-NIC Page 5 of 9 Created On Fri Mar 04 01:17:50 IST 2016 O/TAXAP/223/2007 JUDGMENT during the previous year relevant to the assessment year in question, the CIT correctly disallowed the same and Tribunal committed an error in reversing such a decision.
7. On the other hand, learned counsel Shri Bandish Soparkar for the assessee opposed the appeal contending that the liability of assessee to pay interest was decided by the Supreme Court in the judgment dated 26.7.2001. The assessee had computed simple interest and therefore debited sum of Rs.3.67 crores in the profit and loss account under such liability. This amount the assessing officer had correctly allowed.
8. Counsel drew our attention to the judgment of the Supreme Court in case of ONGC & Anr. vs. Association of Natural Gas Consumers, 2001 (Supp) 1 SCR page 50 to point out that under such judgment the Supreme Court had held that the assessee was liable to pay interest on the delayed payments. Counsel relied on decision of Kerala High Court in case of Commissioner of Incometax vs. Kerala Transport Co., 239 ITR page 183 in which the Court found that the assessee as a carrier has an absolute liability under Section 9 of the Carriers Act, 1865 to make good the loss to the claimants whose goods were lost or destroyed. It was observed that such Page 6 of 9 HC-NIC Page 6 of 9 Created On Fri Mar 04 01:17:50 IST 2016 O/TAXAP/223/2007 JUDGMENT liability stands under the provisions of the said Act and was thus a statutory liability. It was held that such liability could be claimed in the previous year as per the provision made in the books.
9. Facts of the present case may be seen more closely, as noted, the assessee and other members of the Natural Gas Consumer Association had disputed their liability to pay revised charges for consumption of natural gas quoted by ONGC. Such issue came to be decided by the Supreme Court against the assessee and other members. The ONGC was allowed to recover the unpaid charges. However, in such judgment there was no clarification regarding interest to be charged on such delayed payment. It was therefore when ONGC again approached the Supreme Court, under judgment dated 26.7.2001 the Supreme Court applied the principles of restitution and permitted the ONGC to recover the dues with interest. Significantly the Supreme Court has used the words "interest as claimed by ONGC". Such claim arose at the rate specified in clause (5) of the agreement between the parties. Thus by virtue of this judgment the liability of the assessee to pay interest got crystallized. Till this judgment was rendered on 26.7.2001, there was neither any statutory liability to pay interest nor Page 7 of 9 HC-NIC Page 7 of 9 Created On Fri Mar 04 01:17:50 IST 2016 O/TAXAP/223/2007 JUDGMENT any direction from the Supreme Court. In fact, in the earlier round of litigation the Supreme Court gave no direction for charging interest on the delayed payments.
10. On perusal of the judgment of the Supreme Court dated 26.7.2001, it appears that the interest claim raised by the ONGC in its entirety was accepted by the Supreme Court. Thus, one possible view would be that the entire liability of interest even at compounded rate got crystallized by the judgment of the Supreme Court dated 26.7.2001. What happened thereafter was merely negotiations and representations and eventual decision of ONGC to offer soft terms to the assessee and other consumers of the natural gas to pay simple interest on the condition that the entire amount would be paid in one installment within 60 days of acceptance of such offer. We may notice that the Supreme Court by said judgment dated 26.7.2001 while confirming interest liability of the consumers had granted 60 monthly equal installments for payment.
11. Seen from this angle, at any rate the assesse's liability to pay interest computed at simple rate was crystallized on 26.7.2001, and at no later point of time. Merely because the asseessee was negotiating with the ONGC alongwith other members of the association Page 8 of 9 HC-NIC Page 8 of 9 Created On Fri Mar 04 01:17:50 IST 2016 O/TAXAP/223/2007 JUDGMENT for softer terms and for charging simple interest instead of compound interest would not mean that this liability was in any manner contingent. The assessee when debited such amount in the profit and loss account towards interest liability, the same was therefore rightly granted by the assessing officer. The Commissioner therefore committed legal error in disturbing such order of assessing officer.
12. In view of such clear facts, we may not make detail reference to the decision of Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd., vs. Commissioner of Incometax (Central), Calcutta, 82 ITR page363 of Division Bench of this Court in case of Alembic Chemicals Works Ltd., 266 ITR page47 and in the case of Commissioner of Incometax vs. Official Liquidator, Ahmedabad Manufacturing Calico Printing Co. Ltd, 244 ITR 156.
13. The question is answered against the revenue. Tax appeal is dismissed.
(AKIL KURESHI, J.) (Z.K.SAIYED, J.) KKS Page 9 of 9 HC-NIC Page 9 of 9 Created On Fri Mar 04 01:17:50 IST 2016