INCOME TAX OFFICER Vs. PAMPASAR DISTILLERY LTD
LAWS(IT)-1989-12-12
INCOME TAX APPELLATE TRIBUNAL
Decided on December 26,1989

Appellant
VERSUS
Respondents

JUDGEMENT

G.K. Israni, Judicial Member - (1.)THESE three appeals by the department are directed against the separate, but identical, orders of the first appellate authority relating to the assessment years 1980-81,1981-82 and 1982-83.
(2.)The solitary and common issue agitated in these three appeals relates to the allowability of deduction on account of interest claimed to be payable on a liability taken over by the assessee. The assessee had taken over the distillery division of M/s. India Sugar & Refineries Ltd. for consideration of Rs. 33 lacs. According to the terms of the agreement to purchase, the assessee had taken over all the assets and liabilities of the vendor in respect of the distillery division. The liability relating to the excess realisation of sugar sales amounting to Rs. 33,71,042 was there and continues to be there even now. The purchase of the distillery division was made by the assessee on 1-10-1978. The assessee's claim before the I.T.O. was that it was liable to pay interest at the rate of 12.5 per cent on this transferred liability in terms of the provisions of Section 3 of the Levy Sugar Price Equalisation Fund Act, 1976 (hereinafter referred to as 'the 1976 Act'). The I.T.O. disallowed this claim on the grounds, inter alia, that there was no specific mention in the agreement between the assessee and the vendor for taking over such doubtful liability and that there was no debit entry in the books of account in respect of the interest payable and that when even the original owner, i.e. the vendor did not accept such a liability, the assessee could not be allowed any interest thereon. The issue was agitated in three separate appeals before the first appellate authority. It so transpired that the first appeal for the assessment year 1981-82 came to be decided first the learned C.I.T. (A) in his appellate order dated 19,12.1984 dispelled the arguments recorded by the I.T.O. for the disallowance of the claim and allowed the assessee's appeal for that assessment year. The learned C.I.T.(A) was of the view that since the assessee had taken over all the assets and liabilities of M/s. India Sugar & Refineries Ltd., there was no need for the specific mention of this particular liability in the agreement between the vendor and the vendee. The learned C.I.T. (A) further found that interest at the rate of 12.5 per cent was payable on this liability under the provisions of the 1976 Act and, therefore, the assessee was entitled to the deduction, as a business expenditure, of the amount of interest so payable in respect of the assessment year 1981-82. This was irrespective of the fact as to whether a debit entry to that effect had been made or not in the books of account of the assessee. The other two first appeals for the assessment years 1980-81 and 1982-83 came to be decided subsequently and were disposed of by a common order of the learned C.I.T. (A) dated 19.8.1985. This appellate order dated 19.8.1985 does not contain any discussion of the issue involved and has been based on the earlier order of the C.I.T. (A) dated 19-12-1984 for the assessment year 1981-82.
The arguments of the learned Departmental Representative and the learned counsel for the assessee were heard.

(3.)IT was contended by the learned Departmental Representative that the vendor itself had disputed the liability purportedly fixed on it under the 1976 Act and had, for that reason, filed a Writ petition challenging the liability. The present assessee, on the purchase of the distillery division and taking over of all assets and liabilities of the vendor, had accepted this liability which was only of a doubtful and disputed nature. As such, the assessee is not liable to pay any interest on such liability. IT was further contended by the learned Departmental Representative that since the assessee had not passed any debit entries in respect of the interest amount in its books of account, it could not Claim any deduction in respect of such amount. As against this, it was urged by the learned counsel for the assessee that the assessee, on taking over of all the liabilities Of the vendor, had become liable to pay not only the amount of the principal liability but also the interest statutorily chargeable thereon. According to the learned Counsel, such interest at the rate of 12.5 per cent is payable to the Levy Sugar price Equalisation Fund under the terms of the 1976 Act. The liability to pay interest is there irrespective of Whether any debitentry has been passed or not in the books of account of the assessee. Moreover such entry does exist in the assessee's books of account for the accounting years relev 1979-80 and 1982-83. In this connection, support was sought from the decisions in the cases of calcutta CO. Ltd. v CIT [1959] 37 ITR 1 (SC), Kedarnath Jute Mfg. co. Ltd v. CIT [1971] 82 ITR 363 (SC) and Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732(All) (FB).


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