Judgment:
1. These two cross appeals -one by the assessee and the other by the Revenue emanate from the order passed by the CIT(A) on 31-3-2000 in relation to assessment year 1996-97. Since common issues are raised in both the appeals, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.
2. The first effective ground raised by the assessee in its appeal is against the confirmation of disallowance of Rs. 62,38,464 under Section 43B of the Act.
3. Briefly stated, the facts of this ground are that the assessee had claimed an expenditure of Rs. 1,45,58,464 being the interest liability on unpaid bottling fees. The principal amount of the said bottling fee or duty as per the Assessing Officer, was of Rs. 1,39,28,695 where the said duty pertained to the earlier years, but it was disputed by the assessee in the earlier years and the assessee had lost its case before the Hon'ble Rajasthan High Court when the court ordered payment of this duty with interest. Though the assessee filed appeal before the Hon'ble Supreme Court, but it had partly paid the amount during the year and a sum of Rs. 62,38,464 remained to be paid out of the above referred interest amount of Rs. 1.45 crores. The Assessing Officer came to hold that the interest payable on bottling fee was in the nature of bottling fee itself and the non-payment of interest would attract the provisions of Section 43B. He, therefore, made disallowance, which was confirmed in the first appeal.
4. We have heard both the sides and perused the relevant material on record. The disputed amount of Rs. 62.38 lakhs and odd being the interest on bottling fee remained unpaid at the end of the year which, in the Assessing Officer's opinion, partook the character of such bottling fee or Excise duty and hence, the provisions of Section 43B were attracted. There is no dispute about the fact that the said amount was interest on the bottling fee. In reference to interest on sales tax being part of the sales tax, it has been held by the Hon'ble Jurisdictional High Court in the case of Mewar Motors v. CIT that such interest was to be treated at par with the amount of sales tax in so far as the disallowance under Section 43B is concerned and hence, was held to be deductible only on payment.
Applying the same ratio to the facts in dispute, it becomes obvious that the interest on unpaid bottling fee would get the same treatment as the bottling fee itself. Our attention has been invited towards the decision rendered by the Hon'ble High Court in the assessee's own case in CIT v. Udaipur Distillery Co. Ltd. wherein it has been held that the payment of bottling fee chargeable under the State Act was "neither a tax nor a duty nor a fee nor a cess". In view of this decision, it becomes absolutely clear that the bottling fee is not covered within the scope of Section 43B. Amendment to Section 43B Clause (a) as noted by the ld. CIT(A) expanding the scope of "tax or duty" with the substitution of words "tax, duty cess or fee', therefore, becomes inconsequential insofar as the issue under consideration is concerned because the Hon'ble High Court has excluded the bottling fee not only from 'tax or duty' but also from 'cess or fee'. Naturally when the bottling fee itself is outside the purview of Section 43B, the consequential interest on such bottling fee cannot become the subject-matter of disallowance under this section. By overturning the impugned order on this score, we direct the deletion of this disallowance by holding that the disallowance of the amount under Section 43B is not sustainable. This ground is, therefore, allowed.
5. Next ground deals with the claim of bonus amounting to Rs. 1,91,987 which was not allowed by the Assessing Officer but the matter was restored to the file of the Assessing Officer by the ld. CIT(A).
6. At the outset, it was stated by the ld. A.R. that in the subsequent round of proceedings pursuant to the restoration by the ld. CIT(A), the Assessing Officer has allowed the assessee's claim. It, therefore, becomes apparent that the ground has become infractuous.
7. Last effective ground is against the charging of interest under Section 234B in which the assessee had totally denied its liability of charging of any such interest.
8. The ld. A.R. did not press this ground and simply requested for allowing of the consequential relief. We order accordingly.
9. First ground of Revenue's appeal is against the deletion of disallowance of Rs. 1,39,28,685 under Section 43B on account of bottling fee.
10. As discussed in one of the foregoing paras that the assessee-company had paid bottling fee pertaining to earlier years amounting to Rs. 1.39 crores as a result of the judgment of the Hon'ble Jurisdictional High Court deciding the issue against the assessee. The Assessing Officer noted that in such earlier years a total of such liability to the extent of Rs. 1,24,25,297 had been disallowed as claimed by the assessee. He, therefore, held that this liability was not allowable now for the reason that the assessee was following the mercantile system of accounting according to which the amount could have been deducted only when liability accrued and got crystallized. As the assessee had assailed the decision of the Hon'ble Rajasthan High Court, it was, therefore, held that the liability could not have been said to have been finally adjudicated and settled. He, therefore, made addition of Rs. 1.39 crores. In the first appeal, the ld. CIT(A) accepted the assessee's contention that the Assessing Officer had himself made disallowance under Section 43B for Rs. 1.24 crores in earlier years and making of addition of Rs. 1.39 crores in this year would amount to double addition.
11. It was contended by the ld. D.R. that the ld. CIT(A) erred in accepting the assessee's claim without considering the fact that the issue in question though disallowed by the Assessing Officer under Section 43B in the earlier years came to be decided in assessee's favour by the orders of the Tribunal. It was, therefore, urged that by allowing this deduction the assessee would get double benefit. On the contrary, the ld. A.R. contended that the above referred order of the Hon'ble Jurisdictional High Court in Udaipur Distillery Co. Ltd. 's case (supra) has not been accepted by the department and the matter is still pending before the Hon'ble Supreme Court.
12. We have heard both the sides and perused the relevant material on record. It is patent that the assessee claimed deduction of Rs. 1.24 crores in the earlier years which was not paid and the Assessing Officer, by invoking the provisions of Section 43B, held the amount to be disallowable and by virtue of the judgment of the Hon'ble Jurisdictional High Court deciding this issue against the assessee on 25-8-1995 the assessee became liable to pay a sum of Rs. 1.39 crores.
Further, there is no dispute about the fact that the disallowance made by the Assessing Officer in the earlier years amounting to Rs. 1.24 crores by invoking the provisions of Section 43B stands reversed by the Tribunal. The contention of the ld. A.R. is that since the decision in Udaipur Distillery Co. Ltd.'s case (supra) has not been accepted by the Revenue, therefore, the claim has to be allowed because if the decision of the Hon'ble Jurisdictional High Court is reversed, then the liability under Section 43B would come into existence. We are not inclined to accept this contention for the obvious reason that the decision rendered by the Hon'ble Jurisdictional High Court becomes binding upon all the authorities and Tribunals within its jurisdiction.
Filing of appeal against the said judgment does not reduce its value in any manner. So long as the said judgment is overturned by the Hon'ble Supreme Court, the same remains effective and in operation. The net effect of this judgment rendered in assessee's own case in an earlier year is that the bottling fee is not covered under Section 43B as being not in the nature of tax, duty cess or fee and hence, the orders passed by the Tribunal in the earlier years, being in conformity with this view, have full binding force. The position that now emerges is that the addition so made by the Assessing Officer by invoking the provisions of Section 43B in the earlier years was wrongly made and has been rightly deleted. Insofar as the accrual of liability of Rs. 1.39 crores and odd towards payment of bottling fee for the earlier years is concerned, we find that the same has to be decided in accordance with the regular method of accounting followed by the assessee. The assessee being a limited company, is following the mercantile system of account as per which the amount becomes deductible when liability to pay finally arises. It has been held by the Hon'ble Bombay High Court in the case of CIT v. Phalton Sugar Works Ltd. that where a liability arising out of contractual obligation is disputed, the assessee becomes entitled to claim deduction in that behalf only in the assessment year relevant to previous year in which dispute is finally adjudicated upon or settled. As is clear from the facts of the instant case that the assessee had not accepted the decision of the Hon'ble Jurisdictional High Court, therefore, this liability cannot be said to have been finally adjudicated and settled in this year. We, therefore, hold that the addition of Rs. 1,39,28,695 was rightly made and the ld. CIT(A) was not justified in deleting the same.
13. Second ground of Revenue's appeal as against the deletion of addition of Rs. 30,29,985 under Section 43B on account of additional sales tax demand.
14. During the year under consideration, the Commercial Tax Department raised total demand of Rs. 89.68 lakhs (includinginterest of Rs. 46.72 lakhs relating to assessment years 1988-89 to 1991-92). The assessee-company debited the P & L account with Rs. 48,84,199 excluding interest of Rs. 46.72 lakhs, though it paid only Rs. 12.60 lakhs by 31-3-1996 towards 24 instalments in which this sum of Rs. 42.96 lakhs was to be paid. The assessee itself disallowed the unpaid sum of Rs. 18,54,214 under Section 43B vide its computation furnished with the return of income. The Assessing Officer held that the addition of Rs. 30,29,985 (Rs. 48,84,199 minus Rs. 18,54,214) was liable to be made. In the first appeal, the ld. CIT(A) called for remand report from the Assessing Officer to settle the confusion as to whether the assessee's claim was to be dealt under Section 37(1) or 43B. The report was furnished in which the Assessing Officer requested to set aside the issue which was not accepted by the ld. CIT(A). He observed that it was an additional demand raised by the Commercial Department due to reopening of some assessment in the previous year relating to assessment year under appeal and such additional demand was raised during the year itself, which meant that the liability on account of additional demand had arisen in the year under appeal. He further noted that the raising of additional demand as a result of reopening of some assessments could not be anticipated by the assessee. He held that it was deductible from the income in the year in which such demand was raised. He, therefore, deleted the said addition.
15. We have heard both the sides and perused the relevant material on record. The amount of Rs. 30,29,985 disallowed by the Assessing Officer is on account of sales tax demand created in this year as a result of finalization of sales tax assessments of earlier years. The ld. CIT(A) deleted the addition by observing that the assessee was following mercantile system of accounting and hence, the creation of liability of sales tax was an event happening in this year and was, therefore, allowable irrespective of the actual payment. We are not inclined to accept this point of view for the reason that the crystallization or otherwise of the sales tax liability, as a condition for grant of deduction has become redundant after insertion of Section 43B, according to which such amount can be allowed only when it is actually paid. The incurring of liability as per the method of accounting regularly employed by the assessee is now no more relevant. In the post insertion era of Section 43B the amount of sales tax can only be deducted in which it is actually paid by the assessee irrespective of the method of accounting, viz., cash or mercantile, followed by the assessee. In our considered opinion, the ld. CIT(A) was not correct in deleting this addition simply on the ground that the liability was incurred in this year. The material thing to be taken into consideration is the year in which the amount was paid. Since the necessary details are not available on record as regards the amount of sales tax payment in this year nor the ld. A.R. could make them available, we are of the considered opinion that this issue needs to be decided by the Assessing Officer afresh. By setting aside the impugned order, we direct the Assessing Officer to consider the question of disallowance of sales tax liability as per Section 43B and in the light of our above observations. Needless to say he will allow reasonable opportunity of being heard to the assessee before deciding the point as per law.
16. Third ground is against the deletion of addition of Rs. 32,63,112, made under Section 40A(2)(a) of the Act on account of lease rental treated by the Assessing Officer as notional income.
17. Facts apropos of this ground are that the assessee entered into a lease agreement to have full finance for purchase of an effluent and a bottling plant and other assets of Rs. 1,95,47,907 and assets of Rs. 13,72,489 at lease for 5 years with another company of this group, namely Herbert Son Ltd., Bombay and Mc. Dowell & Co. Ltd. The Assessing Officer observed that these companies were substantially owned by Vijay Mallya whose United Breweries own the assessee-company. He further observed that the lease rental of Rs. 70,29,253 was paid at the rate of Rs. 28 per thousand per month on the above sum of Rs. 2.09 crores which gave annual rate of return at 33.6 per cent. As in his opinion, these companies were related to the assessee, hence the provisions of Section 40A(2) were applicable. He further considered that the prime lending rates of banks was 15.6 per cent per annum. He, therefore, allowed deduction at 15.6 per cent on Rs. 2.09 crores which led to the above referred disallowance. In the first appeal, the ld. CIT(A) deleted this addition.
18. We have heard both the sides and perused the relevant material on record. We have perused the lease agreement dated 27-11-1991 by virtue of which the assessee became liable to pay lease rental for 60 months at the rate of Rs. 28 per thousand per month. The year under consideration is assessment year 1996-97 and the said amount was continuously being paid as per agreement in the earlier years, which was allowed in assessments made under Section 143(3) of the Act. There is no change in the factual position from the earlier years vis-a-vis the instant year and lease rent continues to be paid at the same level.
There is no material worth the name with the Assessing Officer justifying deviation from the earlier stand taken by the Revenue in accepting this payment of lease rent as per the agreement. In our considered opinion, the ld. CIT(A) rightly dealt with the matter in allowing assessee's claim on this count. We, therefore, dismiss this ground of appeal.
19. Last effective ground is against the deletion of addition of Rs. 6,35,825 on account of Dharmada receipts.
20. It was observed by the Assessing Officer from the copies of sale vouchers that the assessee-company was charging Re. 1 on sale of IMFL as 'Dharmada'. The Assessing Officer made addition for this sum by observing that the amount of Dharmada was not earmarked by customers as Dharmada while making payments. In the first appeal, the ld. CIT(A) deleted the addition.
21. We have heard both the sides and perused the relevant material on record. Insofar as the taxability of Dharmada receipt is concerned, we find the same to be fully settled in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Bijli Cotton Mills (P.) Ltd. in which it was held that the amount cannot be characterized as trading receipt. The Assessing Officer has embarked upon making addition by mentioning that the customers had not mentioned the word 'Dharmada' while making payment. It has been recorded by the Assessing Officer himself in the assessment order that Re. 1 was clearly earmarked in the sale bills as Dharmada. When the customers have accepted the bills and made payments accordingly, there cannot be any question of earmarking separately the amount paid by them towards IMFL or Dharmada. Payment against the sale bill, clearly mentioning of Dharmada, leaves nothing to doubt that the amount in question was received as Dharmada and hence cannot be charged to tax. We, therefore, uphold the impugned order.