COMMISSIONER OF INCOME-TAX VS M. P. AUDYOGIK KENDRA VIKAS
1999 P T D 2366
[227 I T R 799]
[Madhya Pradesh high Court (India))
Before A. K. Mathur, C. J. and S. K. Kulshrestha, J
COMMISSIONER OF INCOME-TAX
Versus
M. P. AUDYOGIK KENDRA VIKAS
NIGAM (RAIPUR) LIMITED
Miscellaneous Civil Case No.208 of 1994, decided on 15/07/1996.
Income-tax---
----Income---Assessment---Interest---Government undertaking giving loans to constituents and receiving interest---Interest shown in return---Subsequent Government notification not allowing assessee to charge interest ---Assessee reversing entries in its books and informing Assessing Officer before completion of assessment---Interest was not assessable in hands of the assessee---Indian Income Tax Act, 1961.
The assessee, M.P. Audyogik Kendra Vikas Nigam, was a Government undertaking. The assessee had claimed certain collection charges and contingent expenses from its constituents. The same was to form part of the receipts of the assessee. Similarly, the assessee charged interest on its term loans from its constituents and the same also formed part of its receipts. The assessee had shown these receipts in its books and filed the returns accordingly. However, subsequently, the Government of Madhya Pradesh by notifications, dated February 11, 1986, and July 29, 1986, disapproved the assessee's collection charges/contingent expenses and interest on term loans were also not allowed to be charged to the works account. On the basis of the above-stated two notifications, the assessee made adjustments in the books reversing the entries and filed revised returns for the earlier years. The Assessing Officer found that the method of accounting adopted by the assessee was disapproved after the close of the accounting year. He held that the liability accrued after the accounting period; and, as such, the adjustments claimed for the assessment year 1986-87 were not allowable. The Commissioner of Income-tax (Appeals) and the Tribunal allowed the deduction. On a reference:
Held, that the assessee was a Government undertaking and the Government orders were, subsequently, received by the public undertaking not-approving the interest on term loans and, accordingly, the assessee public undertaking informed the Income-tax Officer before the assessment could be processed. There was no reason to have ignored the subsequent decision of the Government being brought to the notice of the Assessing Authority as the assessment by that time was not finalised. The interest on term loans was deductible.
V. K. Tankha for the Commissioner.
Y. K. Munshi for the Assessee.
JUDGMENT
This is an income-tax reference under section 256(1) of the Income Tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer by this Court:
"Whether, under the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was justified to hold that the assessee's claim of deduction of interest on term loan was of allowable nature?"
The assessee is M.P. Audyogik Kendra Vikas Nigam (Raipur) Limited, Raipur. It is a Government undertaking. The assessee had claimed certain collection charges and contingent expenses from its constituents. The same was to form part of the receipts of the assessee. Similarly, the assessee charged interest on its term loans from its constituents and the same also formed part of its receipts. The assessee had shown these receipts in its books and filed the returns accordingly. However, subsequently, the Government of Madhya Pradesh by notifications, dated February 11, 1986, and July 29, 1986, disapproved the assessee's collection charges/contingent expenses and interest on term loans were also not allowed to be charged to the works account. On the basis of the above stated two notifications, the assessee made adjustments in the books reversing the entries and filed revised returns for the earlier years. The Assessing Officer found that since the method of accounting adopted by the assessee was disapproved after the close of the accounting year, he held that the liability accrued after the accounting period; and, as such, the adjustments claimed for the assessment year 1986-87 were not allowable. The assessee filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), while allowing the deduction on account of interest on term loans, observed that the assessee made the claim prior to the completion of the assessment and since the interest was paid on the loans borrowed for the activities for which the Nigam was set up by the Government and since the Nigam's proposal for reimbursement of interest had been turned down, the liability to pay interest to the banks had already accrued in the earlier years and, thus, was allowable. The Department did not accept the decision of the Commissioner of Income-tax (Appeals) and preferred further appeal before the Income-tax Appellate Tribunal. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the Department's appeal. Hence, the Department approached the Tribunal for referring the aforesaid question of law for answer by this Court. The Tribunal has referred the matter for this Court's opinion. We have heard learned counsel for parties and perused the record.
Though the question has not been properly framed it relates to deduction of interest on term loans and whether it is allowable. It was not permitted by the Assessing Officer on the ground that the same had been filed after filing of the return. But this technical objection did not find any favour before the Appellate Authority as well as the Tribunal. We are of the opinion that the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal is justified. In the present case, it is the Government undertaking and the Government orders were subsequently received by the public undertaking not approving the interest on term loans and accordingly the assessee public undertaking informed the Income-tax Officer before the assessment could be processed. There was no reason to have ignored the subsequent decision of the Government being brought to the notice of the Assessing Authority and the assessment by that time was not finalised.
In view of the above, the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal is justified and we answer this question against the Revenue and in favour of the assessee.
M.B.A./2073/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered