Commissioner of Income Tax vs Seshasayee Paper and Boards Ltd.

N. V. Balasubramanian, J.—The following questions of law have been referred to us for our consideration at the instance of the Department.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the sum of Rs. 42,512

incurred as centage charges and other expenses paid to Southern Railways laid out for purposes of business and, accordingly, in allowing the same

as a revenue outgoing for the assessment year 1972-73 ?

Whether, on the facts obtaining in this case the Appellate Tribunal was correct in law in holding that the interest received on the deposits with the

Electricity Board should not be deducted from the gross total income while determining the relief u/s 80-I ?

So far as the second question of law is concerned, it is fairly conceded by learned counsel for the Revenue that the issue raised in the question

was considered by this court in the case of the very same assessee in the case reported in Commissioner of Income Tax Vs. Seshasayee Paper

and Board Ltd., , wherein it was held that the assessee was entitled to deduction u/s 80-I of the Income Tax Act, 1961, in respect of the interest

received on the deposits made by the assessee with the Electricity Board for the supply of electricity to the industry. Since the factual position is in

no way different for the present assessment year, we answer the second question of law referred to us in the affirmative, against the Revenue and in

favour of the assessee.

In so far as the first question is concerned, the assessment year with which we are concerned is 1972-73. The assessee admittedly was

maintaining mercantile system of accounting during the relevant previous year. The assessee earlier had requested the Railways to examine the

feasibility of providing a second railway siding since the company was experiencing difficulties with one siding operation. Therefore, the assessee

wrote to the Railways to help them for construction of another siding in the matter of improving the loading and unloading of wagons. It seems that

the Railways started construction of a second siding on the basis of the request of the assessee. Subsequently, the assessee during the relevant

previous year wrote a letter on October 19, 1971, to the Divisional Superintendent, Southern Railway, requesting them not to proceed with the

work of construction of the second railway siding. It appears, in the meantime, the Railways have incurred certain expenditure in bringing the

materials for putting up the second siding. The railway authorities sent a bill to the assessee asking them to pay a sum of Rs. 42,512 and the

assessee claimed that the said amount was an expenditure incurred by the company for the purpose of laying a second siding, that is for the

purpose of its business and it is entitled to claim the same as deduction against its business income. The Income Tax Officer held that the

expenditure claimed by the assessee was neither revenue expenditure nor the same can be claimed as expenditure incurred for the purpose of the

business, nor it has been incurred during the relevant previous year for the assessment year 1972-73 and, therefore, he disallowed the same. The

assessee took the matter in appeal before the Appellate Assistant Commissioner who agreed with the view of the Income Tax Officer and held that

the expenditure was not incurred during the accounting year relevant to the assessment year 1972-73 and, therefore, the assessee was not entitled

to claim deduction of the same. The assessee took the matter in further appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal

perused the letter of the assessee dated October 19, 1971, as well as the reply letter of the Railways dated June 28, 1972, and came to the

conclusion that the expenditure incurred by the assessee was laid out for business purposes and should be allowed as a revenue outgoing in the

computation of income for the assessment year 1972-73. According to the Tribunal, the liability towards the expenditure had accrued to the

assessee during the relevant accounting year and, therefore, the assessee was entitled to deduction. The Revenue has challenged that order of the

Tribunal and the questions of law set out earlier have been referred to us.

According to learned counsel for the Revenue, the Southern Railway by letter dated September 29, 1972, has quantified the liability which the

assessee has to bear and a bill was sent and, therefore, the liability arose in the subsequent assessment year. Learned counsel for the assessee, on

the other hand, submitted that when the assessee had decided to abandon the project, it had incurred the liability and the railways subsequently

quantified the liability and, therefore, the view of the Tribunal that the liability was incurred during the previous year was correct. In support of his

submission, learned counsel for the assessee relied upon the decision reported in the case of Commissioner of Income Tax Vs. Seshasayee Paper

and Board Ltd., , and certain passages in the Law of Income Tax by Sampath Iyen-ger.

We have carefully considered the submissions of counsel. We have already set out the facts and circumstances of the case in detail which

indicate that the assessee after initially requesting"" for the construction of the second siding decided to abandon the second siding project during the

course of construction of the second siding by the railways. Accordingly, the assessee wrote to the authorities not to proceed with the project. At

that precise point of time, when the railways was informed by the assessee that the project need not be carried on, certain expenses were incurred

by the railways. Therefore, when the assessee took the decision to abandon the project, and requested the railways not to proceed with the

second siding, the assessee has accepted that it would bear the expenditure incurred till then and since the assessee was maintaining the mercantile

system of accounting, the liability towards the expenditure incurred by the railways had accrued on that date. No doubt, it is true that the railways

by a letter dated September 26, 1972, had informed the assessee about the quantum of the amount incurred by the railways which the assessee

was asked to bear, but it cannot be said that only by virtue of that letter of the railways, the liability to bear the cost had accrued against the

assessee. In our opinion, at the point of time, when the assessee took a conscious decision not to proceed with the construction and informed the

railways, the assessee had agreed to bear the liability for the expenses involved till then. What was done by the railways subsequently was the

quantification of the liability and the railways merely by a subsequent letter informed the assessee the amount of the liability which the assessee had

to bear. In other words, the railways, on the basis of the letter of the assessee merely quantified the liability and did not create any new liability

which was not agreed to by the assessee earlier. Therefore, we are of the view that the liability has accrued during the previous year relevant to the

assessment year 1972-73 and the Tribunal was correct in holding that the assessee was entitled to the deduction of the liability for the assessment

year 1972-73- Since we are holding on the facts of the case that the liability has accrued during the previous year for the assessment year 1972-

73, it is unnecessary to consider the decision relied upon by counsel for the assessee. We, therefore, hold that the Tribunal was correct in holding

that the sum of Rs. 42,512 incurred by the assessee on account of centage and other expenses paid to Southern Railways was laid out for the

purposes of business and arose during the assessment year 1972-73 and, accordingly, we answer the first question also in the affirmative, in favour

of the assessec and against the Revenue. The assesses will be entitled to costs in the sum of Rs. 750 (rupees seven hundred and fifty only).