Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1975-76, the following questions, of law have been referred to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in sustaining the disallowance of the liability in respect of adventitious gain of Rs. 24,28,172 under the COPE Scheme? Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the liability in respect of adventitious gain of Rs. 24,28,172 under the COPE scheme was not an ascertained liability but only a contingent liability"
(2.) Shortly stated, the facts are that the assessee, which is a non-resident company, derived income from the business of distribution and marketing of petroleum products in India. As per the Burmah-Shell (Acquisition of Undertaking in India) Act, 1976, the undertaking of Burmah-Shell in India vested in the fully owned Government company, Burmah-Shell Refineries Ltd. with effect from January 24, 1976. The name of the Government company was subsequently changed to Bharat Petroleum Corporation Ltd. On August 1, 1977, with effect from October 16, 1973, the Government of India introduced a scheme known as the "Crude Oil Price Equalisation Account" (hereinafter referred to as "the COPE") to compensate oil companies for fluctuation in the price of crude oil from time to time. The idea behind the scheme was that, since the selling price of the refined products in the market was sought to be kept stable and uniform by all oil companies under the COPE scheme, the difference between the approved FOB purchase price of the crude oil of each oil company and the FOB crude cost which was taken into account by the Government for determining the selling price was recoverable/payable to the Government by each oil company through the COPE account. With effect from November 3, 1973, selling price of the refined products was increased and, therefore, the crude price with reference to which the selling prices were determined by the Government also went up. Since, under the COPE Scheme, the Government had agreed to compensate the oil companies in respect of increases in crude oil purchase price from October 16, 1973, the Government required the adventitious gain arising to the oil companies on the stock of products on November 2, 1973, on account of the increase in the selling price should be surrendered to the Government through the COPE account. In this context, the Ministry of Petroleum, vide circular dated June 24, 1974, clarified that, while calculating such adventitious gain on the stock as on the midnight of November 2, 1973, the crude oil purchased at a lower price prior to October 16, 1773, in stock as on November 2, 1973, should also be taken into account. The closing stock on November 2, 1973, included 51,825 m.t. of crude oil purchased before October 16, 1973. The adventitious gain on this stock which was required to be surrendered was Rs. 24,28,172. In the assessment, the assessee claimed that the adventitious gain of Rs. 24,28,172 which was to be surrendered was an ascertained liability and, therefore, allowable. The Inspecting Assistant Commissioner of Income-tax (IAC of I. T. ) did not accept the argument of the assessee and he disallowed the liability of the aforesaid amount which was claimed. This was confirmed by the Commissioner of Income-tax (Appeals). The assessee filed a second appeal to the Tribunal. The Tribunal held that the liability was only in the nature of a contingent liability and it was never an ascertained liability. The Tribunal further held that the liability was not definite and, therefore, this liability which was claimed by the assessee on the basis of the various circulars of the Government of India could not be allowed.
(3.) At the hearing before us, it has been contended on behalf of the Revenue that, admittedly, the assessee was maintaining its account on the mercantile basis. In the books of account of the assessee for the year ended March 31, 1978, the sum of Rs. 68,75,654 (being the sum total of the two figures Rs. 24,28,172 and Rs. 44,47,482 ) was written back in the profit and loss account for the year ended March 31, 1978. The assessee had credited this amount in the sundry creditors account. The profit was realised on sale to customers and there was no demand from Government for payment of the said sum at any stage during the assessment year 1975-76 ; as such it is not an ascertained liability. The COPE Scheme came into effect from October 16, 1973, and it cannot extend to purchases before that date, nor does the original scheme provide for surrender of adventitious gain on crude oil held in stock. The COPE Scheme, as originally framed, did not mention about adventitious gain for purchases made before October 16, 1973. Hence, purchases made before October 16, 1973, when the COPE Scheme was introduced, cannot be included. There was also no provision for surrender of the adventitious gain on stock held. The assessee raised a dispute about this sum and the said dispute was not finalised in this accounting year. So the sum of Rs. 24,28,172 was only a disputed and a contingent liability during this year and cannot be allowed as a deduction for the year 1975-76. As the Tribunal rightly held, this sum is only a contingent liability and cannot be allowed as a deduction in this year. In 1974. this sum was kept in suspense account. In the assessment year 1978-79, this amount was credited back to the profit and loss account as Government did not raise any demand for it. In this case, the assessee is trying to take inconsistent stands and in fact is following a double standard, although the assessee is following the mercantile system of accounting. So far as the assessee's liability under the COPE Scheme is concerned, if the amount of Rs. 24,28,172 is receivable but not received, then the amount payable but not paid is also not an ascertained liability and cannot be allowed as deduction.;