RAJASTHAN MERCANTILE CO. LTD. VS COMMISSIONER OF INCOME-TAX, 2000 PTD-DELHI-HIGH-COURT-INDIA 2980 (1998)

May 18, 1998 DELHI HIGH COURT INDIA 2000 PTD 2980

2000 PTD-DELHI-HIGH-COURT-INDIA 2980

RAJASTHAN MERCANTILE CO. LTD. VS COMMISSIONER OF INCOME-TAX

2000 P T D 2980

[235 I T R 354]

[Delhi High Court (India)]

Before R. C. Lahoti and Mukul Mudgal, JJ

RAJASTHAN MERCANTILE CO. LTD.

versus

COMMISSIONER OF INCOME-TAX

I.T.C. No.72 of 1995, decided on 18/05/1998.

(a) Income-tax---

----Reference---Advance tax---Amount surrendered by assessee under Amnesty Scheme---Rejection of offer and continuation of proceedings on the basis of return submitted under Amnesty Scheme whether justified-- Sections 215 & 216 whether applicable to assessment completed on remand- Questions of law---Indian Income Tax Act, 1961, Ss. 215, 216 & 256(2).

(b) Income-tax---

----Reference---Disallowance of commission after considering evidence-- Question of fact---No question 6f law arose---Indian Income Tax Act, 1961, S.256(2).

Pursuant to the decision of the Government of India to allow import of cement, several State Corporations were permitted to import cement under open general licence and to sell the same to actual users. In pursuance of that scheme, the Punjab State Civil Supplies Corporation and the Delhi State Civil Supply Corporation were allowed to import cement from Romania and Korea, respectively, by six shipments in all. These two Corporations then appointed the assessee as handling agent and passed over the entire burden of handling the said imported cement to the assessee. The assessee established temporary offices in Madras to handle the import of cement. In August, 1983, a search was conducted in such temporary offices and also at the residential premises of the assessee's managing director in New Delhi. On the basis of the search, the Assessing Officer came to the conclusion that "on money", which was not accounted for in the regular books of account, was charged on the sale of cement. Additions were, therefore, made to the income of the assessee. The Commissioner of Income-tax (Appeals) set aside the assessment directing the Assessing Officer to reframe the assessment after making fresh enquiries regarding the various additions, particularly on account of "on money" and disallowance of commission. A fresh assessment was made determining the assessee's income at Rs.2,86,94,530. The various additions were repeated. In the fresh assessment proceedings, the assessee had filed a revised return showing an additional income of Rs.30,00,000. According to the assessee this return was filed under the Amnesty Scheme but this amount of Rs.30 lakhs was also separately added by the Assessing Officer. The Commissioner of Income-tax (Appeals) deleted certain additions and also held that a separate addition of Rs.30 lakhs could not be made. The Tribunal upheld some of the additions. It also held that separate addition of Rs.30 lakhs could not be made. It disallowed certain deductions claimed as commission payments. On an application to direct reference:

Held, (i) that the questions whether the rejection by the Department of the offer made by the assessee under the Amnesty Scheme was valid and correct and if the answer to the said question was in the affirmative then was it open to the Tribunal to continue the proceedings for assessment on the basis of the return submitted under the Amnesty Scheme; whether' it was not perverse for the Tribunal to hold that the sum of Rs.19,79,240 was the income of the assessee; in the further alternative was it not res judicata of the remand order of the Commissioner, dated September 26, 1987, and whether the authorities below had correctly invoked sections 215 and 216 to the fresh assessment, dated March 30. 1991, completed on remand, were questions of law which had to be referred.

(ii) that the finding that the deductions claimed as commission payments were not allowable was a finding of fact. No question of law arose from it.

A. Raghuvir, Senior Advocate with Ms. Lakshmi Iyengar for Petitioner.

R.D. Jolly with Ms. Premlata Barisal for Respondent.

JUDGMENT

MUKUL MUDGAL, J.---This petition filed under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), seeks a direction to the Income-tax Appellate Tribunal, Delhi Bench, New Delhi, to draw up a statement of the case as arising from its order in R.A. Nos.838/Delhi of 1992 and R.A. No.271/Delhi of 1994 for the opinion of the High Court:

The facts of the case: have been briefly summarised as under:

The assessee is a company which during the year under consideration, i.e., 1984-85, dealt with cement apart from its normal business of paper and the entire dispute in this reference application relates to matters connected with this new business of cement.

PUNSUP and DSCSC then appointed the assessee as what has been described as handling agent and passed over the entire burden of handling the said imported cement to the assessee. The assessee in its turn claims to have associated itself with Rajasthan Construction Co. Ltd., and Fort William Co. Ltd. (hereinafter referred to as FWCL), in the import and sale of cement and several other parties were also said to have been appointed as agents, etc., to whom the commission is claimed to have been paid for services rendered.

To handle the import of the cement at Madras Port the assessee had established temporary offices at Room No.439, Hotel Taj Coramandal, Madras, Cottage No.34, Hotel Palm Grove, Madras, No.140. Santhome High Road, Madras, and Cottage No.55, Hotel Palm Grove, Madras. On August 29, 1983, a search operation under section 132 of the Income-tax Act was conducted at all the aforesaid four places of the assessee at Madras and also at its offices in Delhi at G-18, Hans Bhavan. I.P. Estate, New Delhi, and 81, Daryaganj, New Delhi. A search was also made on the same day at the residential premises, i.e., 56, Greater Kailash I, New Delhi, of the assessee's Managing Director, Shri S.K. Navlakha. At the time of the search at Room No.439, Hotel Taj Coromandal, Madras, the said Shri S.K. Navlakha wags present. A diary admittedly written in the handwriting of Shri S.K. Navlakha, which has been described as ASK-1 was recovered, in which certain entries of receipt of cash totalling Rs.18,71,080 were recorded. Similarly, there was another paper described as LS--22 in which receipt of cash amounting to Rs.1,08,160 was recorded. At the time of the search of the said room two persons, namely, Shri M. Dalip and Shri Jayaraman, were present in the said room, Their statements were recorded. They had stated that they had come to purchase cement from the assessee and they had brought bank drafts for the cost of the cement at the rate of Rs.60 per bag and they were advised to bring Rs.10 per bag in cash, which, too, they had brought. The Assessing Officer has taken a view that the assessee was charging "on money" reflected in the cash amount of Rs.10 per bag on the sale of cement and, therefore, made an addition of Rs.19, 79,240 in respect of the amounts noted in ASK I and LS-22. Further, the Assessing Officer took the view that "on money" must have been charged on the entire cement brought by the ships, "Niketar" and "Promina", and he estimated that the total "on money" on the two shiploads was Rs.47, 42,560. On the date of the search a sum of Rs.5, 75,000 was got deposited by Shri Naulakha in the bank account of the assessee at Madras. The Assessing Officer considered the same to be on account of the "on money" and, thus, made a separate addition of Rs.5, 75,000. Thus, deducting Rs.19, 79,240 plus Rs.5, 75,000 out of Rs.47, 42,560, the Assessing Officer made an addition of Rs.21, 88.320 as the balance of "on money".

During the search at the residence of the assessee's Managing Director, Shri S.K. Navlakha, some papers recording certain transactions, admittedly, in the handwriting of the said Shri S.K. Navlakha were recovered. Those documents related to the import of cement from the ships which were unloaded at Bombay Port, and on the basis of the entries recorded therein the Assessing Officer took a view that on that consignment also "on money", i.e., money over and above the price, accounted for in the books of account, was charged by the assessee and the extent of "on money" was determined at Rs.66, 42,000. This amount was also added to the assessee's income.

As already state the assessee had claimed that it appointed Fortwilliam Company Limited, hereinafter referred to as FWCL, for locating buyers for the imported cement and to act as agents of the prospective buyers for the sale of cement by the assessee on a high seas sale basis. The cement was to be sold on high seas sale basis so as to avoid payment of sales tax and since so many buyers could not appoint separate agents for clearing the goods from the ship and the port, each of the buyers had to appoint FWCL as their clearing agent and they had to pay to the assessee the price of the cement at Rs.740 per MT and to FWCL the various charges, including customs duty, local transport, etc., at a rate of Rs.460 per MT. In respect of the cement brought by the ships "Niketar" and "Promina", a next excess of Rs.17,52,629 was paid by the assessee to FWCL. The Assessing Officer took the view that FWCL had rendered no services to the assessee and, therefore, disallowed this payment. Regarding the cement received through ships "Wanda" and "Kherea", the same was in its entirety sold in one lot on high-seas sales basis to the Kerala Warehousing Corporation. According to the assessee, this transaction was entered into with the help of FWCL, with whom it had agreed to pay commission at the rate of Rs.100 per MT. The assessee, thus, claimed an expenditure of Rs.47,20,000 on this account. Since the Assessing Officer took the view that FWCL had rendered no service, this amount too was disallowed and, thus, a total addition of Rs.64,72-,629 (Rs.17,52,629 plus Rs.47,20,000) to the income was made.

On the basis of certain papers recovered from the residence of Shri Navlakha, the managing director of the assessee-company, the Assessing Officer took the view that "on money", which was not accounted for in the regular books of account, was charged on the sale of that cement as well. The Assessing Officer determined the amount of such "on money" at Rs.42,000 and added that amount to the income of the assessee.

In connection with the sale of two shiploads of cement to the Kerala Warehousing Corporation, the assessee had claimed an expenditure of Rs.2,20,000 paid as commission to Ashirward and their associates for rendering services in getting the transaction settled with the said corporation. The Assessing Officer took the view that this expenditure was not genuine and disallowed the same.

In connection with the sale of cement received through the ship Krishnaraja, Bombay, the assessee claimed that it had paid a commission of Rs.6,84,000 to one Moradabad Synthetics Ltd., who according to the assessee, had rendered services by locating actual users of cement and getting the cement sold to them. This expenditure was also considered as fictitious and was disallowed. Various other sums amounting to Rs.3,82,176 were also paid as commission to various parties and were for similar reasons added back to the assessee's income.

The assessee claimed that freight amounting to Rs.19,28,327 and demurrage amounting to Rs.40,83,445 was payable by it to the ship owners and claimed the same as a deduction in computing its income. The Assessing Officer took the view that these amounts were not payable during the accounting period under consideration and he, therefore, did not allow a deduction therefor.

With the aforesaid additions the assessee's income was, vide order dated March 31, 1986, assessed at Rs.2, 58,04,330 as against a returned income of RsA,51,587.

The assessee appealed to the Commissioner of Income-tax (Appeals), who by a brief order, dated September 26, 1986, set aside the assessment directing the Assessing Officer to reframe the assessment after making fresh enquiries regarding the various additions, particularly on account of "on money" and disallowance of commission paid to FWCL. The learned Commissioner of Income-tax (Appeals) observed that Shri R. Jayaraman and Shri M. Dalip, the two persons who were present in Room No.439, Hotel Taj Coramandal, Madras, at tire time of search on August 29, 1983, and had spoken about "on money", should be summoned, and the assessee be allowed an opportunity of cross-examination. After the assessment was set aside, a fresh assessment was made by another officer vide, order dated March 31, 1989, determining the assessee's income at Rs.2, 86,94,530. The various additions, referred to above, were repeated. In the reassessment proceedings, the assessee had filed a revised return showing an additional income of Rs.30, 00,000. According to the assessee, this return was filed under the amnesty scheme and this amount of Rs.30 lakhs was also separately added by the Assessing Officer. Regarding the Commissioner of Income-tax (Appeals) direction to summon the two persons, named above, namely, Shri Jayaraman and Shri M. Dalip, they were summoned for March 22, 1989, and they (lid not attend. They seem to have informed the Assessing Officer that they have to come from Madras to Delhi. This is the explanation given by the Assessing Officer for not being able to comply with the directions of the Commissioner of Income-tax (Appeals) regarding the opportunity given for cross-examination of the said two witnesses.

The assessee again appealed to the Commissioner of Income-tax (Appeals) who deleted the additions of, (i) Rs.19,79,240, (ii) Rs.5,75,000 and (iii) Rs.21,88,320 by observing as below:

"I have carefully considered the submissions made by counsel and the voluminous evidence produced in support of the submissions. I am -satisfied that the appellant's plea in respect of these three additions must be accepted. I, therefore, direct that these three additions, viz., Rs.19, 79,240 in, para.18(v), Rs.5,75,000 in para. 18(viii) and Rs.21, 88,320 in para. 18(ix) be deleted."

The aforesaid additions related to the alleged realisation of "on money" on the sale of cement received through "Promina" and "Niketar" ships. Similarly, the learned Commissioner of Income-tax (Appeals) also deleted the addition of Rs.66, 42,000 in respect of on money alleged to have been charged on the sale of cement pertaining to the ships "Krishnaraja" and "Shyam Venture". Regarding the commission of Rs.16, 52,629 and Rs.47, 20,000 paid to Fort William Co. Ltd., the learned Commissioner of Income-tax (Appeals) deleted the first amount and with regard to the sum of Rs.47, 20,000, he took the view that the role of FWCL in connection with the sale of cement brought by ships "Wanda" and "Kherea" was only that of a liaison agent. He considered a payment of Rs.25 per MT as reasonable for the services rendered in that connection, as against Rs.100 Per MT claimed to have been paid by the assessee. He, thus, directed an allowance of Rs.11, 80,000 as against the claim of the assessee of Rs.47, 20,000. The learned Commissioner of Income-tax (Appeals) upheld the disallowances in respect of payments said to have been made to Ashirwad and its associates (Rs.2,20,000), Moradabad Synthetics Ltd. (Rs,6,84,000) and some other parties (Rs.3,21,780). Regarding the disallowance of the assessee's claim of Rs.60, 11,772 payable as freight and demurrage, the Commissioner of Income-tax (Appeals) agreed with the view taken by the Assessing Officer and confirmed the disallowance. Regarding the addition of Rs.30 lakhs, which represented the additional amount of income disclosed by the assessee in the revised return, the Commissioner of Income-tax (Appeals) took the view that in the face of the additions and disallowances made, which exceeded the amount of the additional income disclosed by the assessee, a separate addition of Rs.30 lakhs could not be made. He, therefore, deleted the said addition.

The aforesaid order of the Commissioner of Income-tax (Appeals), dated March 15, 1990 was challenged both by the assessee as well as by the Revenue before the Income-tax Appellate Tribunal (hereinafter referred to as the ITAT), and the grounds set up in the two appeals were as follows:

Assessee's Anneal I T A No 2788 (Delhi) of 1990:

"(1)The learned Commissioner of Income-tax (Appeals) erred in fact and law in disallowing a sum of 88.35,40,000 out of commission of Rs.47,20,000 paid to Fort William Co. Ltd.

(2)The learned Commissioner of Income-tail (Appeals) erred in disallowing Rs.2,20,000 paid to or at the- behest of Ashirward for their transferring the contract from PUNSUP to the appellant.

(3)The learned Commissioner of Income-tax (Appeals) erred in disallowing 'Rs.6,84,090, the commission paid to Moradabad Synthetics Ltd.

(4)The learned Commissioner of Income-tax (Appeals) erred in disallowing a sum of Rs.3,71,780 paid as brokerage/commission to various parties.

(5)The learned Commissioner of Income-tax (Appeals) erred in disallowing a sum of Rs.60,11,722, the provision made for accrued liability of freight and demurrage.

(6)The learned Commissioner of Income-tax (Appeals) erred in not adjudicating on appellant's ground No. 16 objecting to levy of interest under sections 215 and 216.

(7)The learned Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs.30,00,000 included in the amnesty return as being covered by other additions upheld by him and not as being wholly unjustified on the facts and. circumstances of the case."

Revenue's Appeal IT.A. No.3615 (Delhi) of 1990:

On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in:

(1)allowing relief of Rs.5,75,000 on account of income treated from undisclosed sources;

(2) allowing relief of Rs.19,79,240 on account of cash receipts;

(3) allowing relief of Rs.21,88.,320 on account of cash receipts;

(4) allowing relief of Rs.65,42,000 on account of cash receipts;

(5) allowing relief of Rs.16,52,629 on account of division of sales price;

(6)allowing relief of Rs.11,80,000 on account of payment in respect of commission; and

(7) allowing relief of Rs.30,00,000 on account of income from undisclosed sources."

The following main factors were also noted by the Tribunal:

"The assessee is a company of the Bangur House of Industrialists. Learned counsel for the assessee informed us that it had only two employees, namely, G. K. Maheshwari as its secretary, and Bhanu Pratap Singh as accountant. It was earlier trading in paper and took up the aforesaid transactions in relation to cement for the first time. "The Bangur Group owns a cement factory under the ownership of Digvijay Cement Company Ltd., Shri S.K. Navlakha is the Managing Director of the assessee-company and is a resident manager at Delhi of the said Digvijay Cement Co. Ltd., Rajasthan Construction Co. is also a company of this group. So, is Fort William Co. Ltd. (FWCL) a company based at Calcutta, which owns a steel wire factory and jute mill situated near Calcutta. Like the assessee, Rajasthan Construction Co. and FWCL too had no earlier dealing in cement:"

The questions were refrained and eventually the revised questions are as follows:

"(1) Whether, on the facts and in the circumstances of the case and in law, the rejection by the Department of the offer made by the assessee under the amnesty scheme was valid and correct and if the answer to the said question is in the affirmative then was it open to the Tribunal to continue the proceedings for assessment on the basis of the return submitted under the amnesty scheme?

(2)Whether, on the facts and in the circumstances of the case and in law, was it not perverse for the Tribunal to hold that the sum of Rs.19,79,240 was the income of the assessee. In the further alternative is it not res judicata of the remand order of the Commissioner, dated September 26, 1987?

(3)Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the deduction of the following commission payment is not to be allowed, is based on suspicion, conjectures and surmises and as such is perverse in law and so invalid? In the further alternative is it not res judicata of the remand order of the Commissioner, dated September 26, 1987?

(1) Fort William Company Ltd.	(Rs.) 16,52,629 47,20,000	(Rs.) 63,72,629
(2) Moradabad Synthetic Ltd.		6,84,000
(3) Mr. V. Subramaniant		54,060
(4) Mr. C. Ramalingam		36,300
(5)Mr. Pushpam		58,800
(6) Mr. Ravi Prakash		12,000
(7) Mr. B.G. Mundhra		21,000
(8) Nyati Brothers		3,000
(9) Mr. P.R. Nityanand		9,260
(10) Mr. K. Muttuzhegan		1,752

(4)Whether, on the facts and in the circumstances of the case and in law, the authorities below had correctly invoked sections. 215 and 216 to fresh assessment, dated March 30, 1991, completed on remand? "

The Income-tax Appellate Tribunal recorded the following findings:

1.The Kacha cash day book is a totally fabricated document;

2. We are of the view that the evidence on record clearly establishes that the assessee was receiving "on money" in connection with the sale of cement over and above the price that was being shown in the books of account.

In so far as the issue relating to the alleged charging of "on money" on the sale of cement handed by the assessee on behalf of the DSCSC is concerned, the Income-tax Appellate Tribunal recorded the following findings:

"No unaccounted cash was recovered and on the basis of a mere suspicion, the addition in question could not be sustained. In our view, therefore, the Commissioner of Income-tax (Appeals) was right in deleting the addition and we uphold his order on this point."

In so far as the issue relating to the payment made to FWCL is concerned, the Income-tax Appellate Tribunal held:

"But the evidence on record clearly indicates that FWCL did not play any active role in the execution of the operations connected with the import and sale of cement: It was all done by the assessee with the assistance of staff deputed by the Rajasthan Construction Co. and Digvijay Cement Co. Although FWCL is a subsidiary of Digivjay Cement Co. Ltd. but it cannot be said that the employees of Digvijay Cement Co. who were working with the assessee, had been deputed at the request of FWCL to Digvijay Cement Co., deputed those persons for performance of the duties of it's subsidiary, the F WCL.

For the above reason we are of the opinion that FWCL was not entitled to any money in respect of the transactions in question and, therefore, the Commissioner of Income-tax (Appeals) was not correct in deleting the addition of Rs.16,52,629. We hereby reverse his finding and restore the said addition."

In so far as the issue relating to payment to FWCL for Rs.47,20,000, as a remuneration for arranging the sale of cement brought by ships, "Wanda" and "Kherea", to KSWC is concerned, the Tribunal recorded the following finding:

"We have already mentioned how the assessee's explanation and evidence on several other counts have been found to be untrue. Some of such transactions are yet to come up for discussion hereafter and we are unable to agree with the learned Commissioner of Income-tax (Appeals) that Fort William Co. Ltd., rendered any services to .the assessee in connection with the sale of cement. We hold that no such services were rendered and, therefore, setting aside the Commissioner of Income-tax (Appeals)'s order on the point, we restore the disallowance of the entire sum of Rs.47,20,000."

In so far as the disallowance of various amounts of commission paid by the assessee to various concerns is concerned, the finding of the Income tax Appellate Tribunal is as under:

(a)

Commission of Rs.2,20,000 paid by the assessee to one Mr.

"In our view, therefore, these payments, which are payments for services rendered by Ahsirwad and are not excessive or unreasonable represent a genuine business expenditure incurred by the assessee and should be allowed as deduction in computing the assessee's income. Therefore, reversing the orders of the authorities below on this point we delete the disallowance."

(b) The sum of Rs.6,84,000 paid to Moradabad Syntex Ltd. (MSL):

In our view, therefore, the mere production of the aforesaid documents was not enough proof of MSL having rendered any services to the assessee and, in our view, therefore, this payment was rightly disallowed. We uphold the orders of the authorities below on this point.

In so far as the disallowance of Rs.3,71,780 claimed to have been paid as brokerage/commission to various parties is concerned, the findings of the Tribunal are as under:

"1. Mr. A.R. Narajan 68,070	Deductible
2. Mr. A. Ram Dass 58,650	Deductible
3. Mr. V. Subramaniam 54,060	Not held to be deductible.
4. Mr. G. Ramalingam 36,300	Disallowed.
5. Mr. P. Pushpam 58,800	Not allowed.
6. Mr. Ravi Prakash 12,000	Not allowed.
7. Mr. B.G. Mundhra 21,000	Not allowed.
8. G. Ram & Sons 47,500	Not allowed.
9. Nyati Bros, 3,000	Not allowed.
10. Mr. P.R. Nityanatid 9,260	Not allowed.
11. Mr. Durai Kannan 1,000	Not allowed.
12. Mr. K. Muttuzhegham 1,752	Not allowed.

In so far as the point raised in the revised return purported to have been filed under the amnesty scheme is concerned, the Income-tax Appellate Tribunal held as follows:

"The assessee voluntarily filed a return duly verified declaring additional income of Rs.30 lakhs. Thus, the assessee unequivocally admitted that it had earned Rs.30 lakhs over and above what was disclosed and this was never retracted by filing a fresh revised return omitting the sum of Rs, 30 lakhs, nor has the assessee otherwise attempted to show that this admission was incorrect. Therefore, the assessee's income could not be assessed as an amount lower than what was returned in the revised return. However, the income to be determined was one compact whole derived from the assessee's business and since the income determined by the Assessing Officer by making various disallowances and additions was much more than the income returned, the sum of Rs.30 lakhs declared as additional income in the revised return could not be separately added. The Commissioner of Income-tax (Appeals), therefore, rightly deleted this addition and there is no need for any change in what he has stated as reasons for the deletion. The Revenue's plea is thoroughly untenable because this additional income was not offered by the assessed from a different source. It represented only the assessee's income from business and it is only to the assessee's business income that the Assessing Officer made this addition. The Revenue's plea, therefore, is rejected."

In so far as the claim for Rs.60, 11,722 on account of a provision made for the assessee's liability for freight and demurrage in respect of cement is concerned (which comprises freight amounting to Rs.19, 28,327 and demurrage amounting to Rs.40, 83,44:5), the findings of the Income-tax Appellate Tribunal are:

(a)Freight amounting to Rs.19,28,327:

"We are of the view that the expenditure of Rs.19,28,327, for which the assessee had made provision, was wrongly disallowed. We direct this amount to be allowed as a deduction in computing the assessee's income for the year under consideration.

At the hearing we were informed that this amount has been allowed to the assessee as a deduction in the following year in which the assessed had actually paid this amount. We direct that if the sum of Rs.19,28,327 or any part thereof has been allowed, as a deduction in any subsequent year, the same shall be withdrawn and added back to the income of that year."

(b) Demurrage amount to Rs.40,83,445:

"Since this clause uses the words 'to be settled' the learned Departmental Representative contended that the terms were not final and the amount was yet to be determined between the parties.

We have considered the respective arguments. The use .of the words 'to be settled', in our view does not make the liability of the assessee to pay demurrage contingent. The rate of demurrage/despatch was settled by agreement and what was to be determined was only the actual time for which demurrage was payable by the assessee. The demurrage payable to a ship owner is nothing but extra freight payable for the extended engagement of the ship. The assessee has placed in the paper book the arbitration award in respect of 'Promina' (pages 19 to 30 of the supplementary paper book). The award shows that the owners agreed to accept demurrage for five days, six hours and 39 minutes amounting to U.S. Dollars 16,886.67. This is the award by the arbitrator. The liability for demurrage already existed and in respect of 'Promina', we direct the rupee value of U.S. Dollars 16,886.67 to be allowed as deduction in the year under consideration."

As regards "Nikatar" no arbitration award has been placed before us. Learned counsel for the assessee had stated before us at the hearing that the freight and demurrage due in respect of "Nikatar" and "Promina" have been paid in full in February, 1984. We, therefore, direct the Assessing Officer to verify this contention and in case the demurrage in respect of "Nikatar" has been paid in February, 1984, the amount thereof be allowed as a deduction in computing the income of the: year under consideration.

Regarding "Wanda" and "Kherea", as already stated, these two ship loads had been sold to the Kerala State: Warehousing Corporation. The agreement between the assessee and the KSWC has been placed at pages 282 to 285 of the paper book and clause 10 of the agreement reads as under

"10. Demurrage guarantee.---All demurrages incurred by the ship till it reaches the agreed port and notice of readiness served on the Kerala State Warehousing Corporation or its agents shall be at the Rajasthan Mercantile Co. Ltd. account. Subsequent demurrage incurred on account of delay in clearance as per C/P terms will have to be borne by the Kerala State Warehousing Corporation and will be paid on receipt of bills from the Rajasthan Mercantile Co. Ltd. on the basis of lay time calculated after discharge by the master of the ship."

Thus, a part of the liability for demurrage was transferred to the KSWC and the assessee was entitled to receive the same from the KSWC. The ships had been hired by the PUNSU P and as per agreement discussed above, the assessee took up the obligations of the PUNSUP.

In out view, therefore, the matter in respect of demurrage for "Wanda" and "Kherea" has to be restored back to the Assessing Officer. He shall with reference to the necessary shipping documents and the claims made by the parties in the arbitration proceedings, find out what is the admitted time for which demurrage is payable and determine the demurrage payable by the assessee in accordance with the rates given in the charter party. The amount so determined shall be allowed as a deduction in computing the income of the assessee for the year under consideration. If, however, the matter has been settled between the parties by arbitration or otherwise for any lesser sum, only such lesser sum shall be allowed. It is clarified that the demurrage paid by the KSWC in terms of the aforesaid agreement shall not be allowed as a deduction.

We further direct that if out of the amounts allowed as deduction in respect of freight and demurrage, by virtue of our directions contained in this order, any sum has already been allowed to the assessee in computing the income for assessment year 1985-86 or ;my later year, the same shall be withdrawn.

Having heard at length learned counsel for the parties, we are of the opinion that out of the four questions (stated in para.5.2 (page 361) above), questions Nos.l, 2 and 4 are questions of law required to be answered by this Court and, accordingly, the Tribunal is directed to refer the aforesaid three questions to the High Court for its opinion.

As question No.3 (para.5.3 (page 362) above) is purely factual in nature, we decline to direct the Tribunal to make reference of the said question.

The petition stands disposed of accordingly. No order as to costs.

M.B.A./4058/FCPetition disposed.

RAJASTHAN MERCANTILE CO. LTD. VS COMMISSIONER OF INCOME-TAX, 2000 PTD-DELHI-HIGH-COURT-INDIA 2980 (1998)

2000 P T D 2980

JUDGMENT

Requisition against illegal voters MTBA

Comdemn Resolution against attack on Azhar Siddique ASC