The Commissioner of Income Tax and The Assistant Commissioner of Income Tax vs Karnataka State Constructions Corporation Ltd.

K.L. Manjunath, J.—The revenue has come up in this appeal challenging the legality and correctness of the order passed by the Income Tax Appellate Tribunal, Bangalore, in ITA No. 9/Bang/2008 dt.26,9.2008. The questions of law that arises for our consideration in this appeal is:

1) Whether an Interim award passed by the Arbitrator against the assessee to pay a sum of Rs. 52.84 lakhs payable to its Sub-Contractor is allowable as deduction during the current assessment year before passing the final award and

2) Whether an Interim award of the Arbitrator can be recovered from the Central Government. If it is so whether the said amount can be allowable as a deduction during the current assessment year?

It is not in dispute that the assessee indulging in the construction activities had obtained contract from the Central Government. The assessee in turn entrusted the work to a Sub-contractor. A dispute arose between the assessee and its Sub-contractor and the matter was referred to an Arbitrator. In the Arbitration proceedings, an Interim award is passed directing the assessee to pay a sum of Rs. 52.84 lakhs. In view of the Interim award the assessee claimed deduction during the relevant assessment year to an extent of Rs. 52.84 lakhs. The contention of the assessee was rejected by the Assessing Officer on the ground that the assessee can recover the said amount from the Central Government, therefore, the same cannot be permitted to be deducted. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), which appeal came to be dismissed. Against which the assessee filed a second appeal before the Income Tax Appellate Tribunal, Bangalore. The Income Tax Appellate Tribunal after considering the fact held that the amount of Rs. 52.84 lakhs has been paid by the assessee pursuant to an Interim order passed by the Arbitration and the said amount is allowable deduction. It was also brought to the notice of the Income Tax Appellate Tribunal that the assessee in turn had made a claim before the Central Government. When the Central Government has turned down such requests as the Interim order has to be honoured and if such amount paid pursuant to an Interim order, the department cannot contend that such payment cannot be allowed as deduction since final award is yet to be passed.

According to us, if any, amount is paid pursuant to an Interim order, would be subject to the final award of the Arbitration proceedings and in the Arbitration proceedings, if ultimately held that, the assesses, is not liable to pay any amount and the amount of Rs. 52.84 lakhs or any sum paid by the assessee has to be recovered from the Sub-contractor, the assessee is bound to brought the same into the account and therefore the arguments advanced by the learned Counsel for the revenue cannot be accepted.

In the result, we do not see any substantial questions of law that arises in this appeal.

Accordingly, the appeal is dismissed.