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M/s. Aggarwal And Modi Enterprises (Cinema Project) Pvt. Ltd Vs. The Commissioner Of Income Tax
February, 09th 2016
$~
*       IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                      Reserved on: 14th December, 2015
                                                     Date of Decision: 21st January, 2016

+                                         ITA 353/2003

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) CO. PVT. LTD                  ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX               ..... Respondent
             Through: Ms. Suruchi Agarwal, Senior Standing
                      Counsel with Ms. Vibhooti Malhotra, Junior
                      Standing Counsel and Ms. Radhika Gupta,
                      Advocate.

                                               With

+                                         ITA 354/2003

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) CO. PVT. LTD                 ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX               ..... Respondent
             Through: Ms. Suruchi Agarwal, Senior Standing
                      Counsel with Ms. Vibhooti Malhotra, Junior
                      Standing Counsel and Ms. Radhika Gupta,
                      Advocate.


ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                                      Page 1 of 31
                                               With

+                                         ITA 355/2003

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) CO. PVT. LTD                 ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX               ..... Respondent
             Through: Ms. Suruchi Agarwal, Senior Standing
                      Counsel with Ms. Vibhooti Malhotra, Junior
                      Standing Counsel and Ms. Radhika Gupta,
                      Advocate.

                                               With

+                                         ITA 767/2006

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) PVT. LTD                     ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

C.I.T.                                                            ..... Respondent
                         Through:         Mr. Zoheb Hossain, Junior Standing
                                          Counsel for Mr. Rohit Madan, Senior
                                          Standing Counsel.

                                               With

+                                         ITA 769/2006

M/s. AGGARWAL AND MODI ENTERPRISES

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                                   Page 2 of 31
(CINEMA PROJECT) PVT. LTD                     ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               With

+                                         ITA 770/2006

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) PVT. LTD                     ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               With

+                                         ITA 801/2006

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) PVT. LTD                     ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus


ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                      Page 3 of 31
THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               With

+                                         ITA 876/2006

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) PVT. LTD                     ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               With

+                                         ITA 1122/2007

AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) CO. PVT. LTD                 ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               With

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                      Page 4 of 31
+                                         ITA 1123/2007

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) CO. PVT. LTD                 ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                        Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               With

+                                         ITA 1273/2009

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) PVT. LTD                     ...... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                       Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               With

+                                         ITA 1274/2009

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) PVT. LTD                     ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                      Page 5 of 31
                                          Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                ..... Respondent
             Through: Mr. Zoheb Hossain, Junior Standing
                      Counsel for Mr. Rohit Madan, Senior
                      Standing Counsel.

                                               And

+                                         ITA 1277/2009

M/s. AGGARWAL AND MODI ENTERPRISES
(CINEMA PROJECT) PVT. LTD                     ..... Appellant
             Through: Mr. C.S. Aggarwal, Senior Advocate with
                       Mr. Prakash Kumar, Advocate.

                                              versus

THE COMMISSIONER OF INCOME TAX                 ..... Respondent
                 Through: Mr. Zoheb Hossain, Junior Standing
                 Counsel for Mr. Rohit Madan, Senior Standing
                 Counsel.

CORAM:
JUSTICE S. MURALIDHAR
JUSTICE VIBHU BAKHRU

                                           JUDGMENT
%                                           21.01.2016

1. These are thirteen appeals by the Assessee under Section 260A of the
Income Tax Act, 1961 (`the Act') pertaining to Assessment Years (AYs)
1987-88 to 1992-93, 1995-96, 1997-98 to 2001-2002 and 2003-2004. The
question of law framed by the Court vide its order dated 21 st September,
2004 in ITA Nos. 353, 354 and 355 of 2003, which is similar to the ones
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                                   Page 6 of 31
framed in the other appeals, reads as under:
        "Whether the Income Tax Appellate Tribunal was correct in law in
        reversing the order of the Commissioner of Income Tax (Appeals) and
        confirming the disallowance of the amount on account of liability of
        licence fee and on account of interest on arrears of licence fee payable
        to N.D.M.C. for running the business at Chanakya Cinema?"

Background Facts
2. The Assessee was engaged in the business of running a cinema hall in the
name of Chanakya Cinema at Yashwant Place, which belonged to the New
Delhi Municipal Council (`NDMC'). In terms of an Agreement dated 16th
September, 1970 entered into with the NDMC, the Assessee obtained a
licence for running a cinema hall for a period of ten (10) years (i.e., from 1st
October, 1970 to 30th September, 1980) against payment of licence fee of
Rs. 5,51,111/- per annum. Clause 1 of the Agreement gave an option to the
Assessee to get his licence renewed for a further period of ten (10) years on
the terms and conditions to be mutually agreed to between the parties.

3. The Assessee applied for renewal of the licence on 11th January, 1980. A
week prior to the expiry of ten years, on 23rd September 1980, a fresh
Licence Agreement was entered into between the Assessee and the NDMC.
The annual licence fee was increased to Rs. 13,50,000/- payable in twelve
equal monthly instalments. The Assessee is stated to have paid the licence
fee from October, 1980 to March, 1981 under protest.

The various rounds of litigation
4. On 9th April 1981, the Assessee filed Suit No. 295/1981 in the Court of
the Sub Judge, First Class, Delhi. In the said suit, the Assessee challenged

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                             Page 7 of 31
the increase in the licence fee and also sought a stay against dispossession.
By an order dated 10th April 1981, the learned Sub Judge, First Class granted
an interim stay restraining NDMC from termination of the licence. By a
further order dated 22nd January 1982, the learned Sub Judge, First Class
confirmed the stay and restrained NDMC from recovering the enhanced
amount of the licence fee till the final disposal of the suit.

5. Aggrieved by the aforementioned order, the NDMC filed an appeal in the
Court of Senior Sub Judge, Delhi, who by an order dated 10th May 1982, set
aside the injunction granted by the learned Sub Judge, First Class.
Aggrieved by this, the Assessee filed a Civil Revision No. 1054/1982 in the
High Court, which by an order dated 30th November 1982, set aside the
order dated 10th May, 1982 of the Additional Senior Sub Judge and restored
the order dated 10th April, 1981 of the Sub Judge, First Class.

6. In the meanwhile a resolution was passed by the NDMC on 25 th March,
1981, whereby it was decided that licenses generally would be renewed for
an additional licence fee of 30 per cent over the original licence fee. The
Assessee then filed an application seeking amendment of the plaint in Suit
No. 295/1981. While allowing the amendment by an order dated 28th
February 1983, the learned Sub Judge, Third Class also restrained the
NDMC from disturbing the status quo at 30 per cent of the enhanced rate of
licence fee till a decision in the Suit.

7. The NDMC then filed an appeal being MCA No. 37/1984 before the
learned Additional Senior Sub Judge challenging the aforementioned order
dated 28th February 1983 of the Sub Judge, Third Class. The Additional
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                            Page 8 of 31
Senior Sub Judge by an order dated 11th February 1985, reversed the order
dated 28th February, 1983 of the Sub Judge and vacated the injunction. The
Assessee then filed a Revision Petition, being CR No. 206/1985 in the High
Court which by an order dated 14th January 1987, set aside the order dated
11th February, 1985 of the Additional Senior Sub Judge and directed that the
Assessee would be entitled to status quo and carry on the business of
running Chanakya Cinema on payment of an additional 30 per cent licence
fee till the disposal of the suit by the Sub Judge, First Class. The review
application filed by the NDMC being CM (RA) No.18/1987 was dismissed
by the High Court by an order dated 21st October, 1987.

8. With the second agreement having come to an end on 30 th September,
1990 and the NDMC not having renewed the licence, the Assessee filed
Civil Writ No. 3244/1992 in the High Court for renewal of the licence in
terms of the clause in the Agreement dated 23rd September 1980 which gave
it an option for renewal. By an order dated 21st September 1992, the High
Court while issuing notice in the writ petition directed status quo to be
maintained regarding possession of Chanakya Cinema. By a subsequent
order dated 10th February 1993, the interim order was made absolute till the
decision in the petition. Subsequently by order dated 25 th May 2001, the
High Court vacated the aforementioned interim order while observing that
the NDMC would not be prevented from considering the Assessee's
proposals dated 15th March, 2001 and 5th April, 2001.

9. The Assessee filed a further writ petition CW No. 773/2002 seeking
directions for renewal of the licence beyond 30 th September, 2000. An

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                         Page 9 of 31
interim order was passed in the said writ petition on 20 th March, 2002 to the
effect that the Assessee would not be dispossessed and that no coercive steps
would be taken against it.




10. In the meanwhile the NDMC initiated proceedings under the Public
Premises (Eviction of Unauthorised Occupants) Act, 1971 (`PP Act') against
the Assessee by issuing notices dated 19th March 2002/8th April, 2002 under
Sections 5 and 7 of the PP Act requiring the Assessee to show cause why an
eviction order should not be passed against it.

11. In the pending writ petition, i.e., CW No. 773/2002, an order was passed
on 24th September 2002 recording the statement of NDMC that it would not,
during the pendency of the said writ petition, pursue the proceedings under
the PP Act. Consequently, by the order dated 10th October 2002 the Estate
Officer, NDMC stayed further proceedings under the PP Act.

12. In the meanwhile, writ petition CW No. 773/2002 itself came to be
dismissed by an order dated 8th August 2003 with the High Court directing
the Assessee to vacate the premises on or before 30th September 2003. The
appeal filed by the Assessee being LPA No. 596 of 2003 against the order
dated 8th August 2003 came up for hearing on 23rd September 2003 on
which date the Division Bench of the High Court passed an interim direction
for maintaining status quo. This was subject to the Assessee undertaking that
it would abide by the order that may be passed by the High Court. In the said
LPA the High Court called for the records of the suit, the civil revision
petition and both the decided and pending writ petitions by its order dated
29th October 2003. The interim orders were continued.
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                           Page 10 of 31
13. LPA No. 596 of 2003 was dismissed by the Division Bench on 30 th
August 2005. It was held that the Assessee could not have any legitimate
expectation regarding renewal of the licence and in any event not in
perpetuity as they bid with open eyes for a license which was to be for a
duration of 10 years with the agreement providing only one renewal.

14. The Assessee's Special Leave Petition (Civil) No. 21183 of 2005
challenging the aforementioned order dated 30th August 2005 was registered
as Civil Appeal No. 4002 of 2007 in the Supreme Court. The said appeal
was dismissed on 31st August 2007 with the Supreme Court granting time to
the Assessee till 31st December 2007 to vacate the premises. The question of
dues owed by the Assessee to NDMC was not decided since it was still
pending adjudication. The proceedings under the PP Act revived with
notices being issued under Sections 5 and 7 thereof on 15th April 2009. It is
stated that these proceedings are still pending adjudication.

Proceedings under the Income Tax Act
15. Turning now to the proceedings under the Act, for AYs 1982-83 and
1983-84, the Assessee filed its return claiming deduction of Rs. 10,17,130
and Rs. 13,50,000 respectively towards licence fee payable to the NDMC
and this was allowed by the Assessing Officer (`AO') and the assessment
order for the said AYs became final.

16. For AY 1984-85 to 1986-87 apart from licence fee of Rs. 13,50,000
claimed by the Assessee in terms of the Agreement dated 23 rd September
1980 as expenditure, an additional sum was claimed towards payment of
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                          Page 11 of 31
interest. In the case of the amounts claimed towards payment of interest, for
AY 1984-85 a sum of Rs. 2,03,860.86 plus Rs. 1282.20 aggregating to Rs.
2,05,143 was claimed, for AY 1985-96 a sum of Rs. 3,40,022.92 was
claimed and for AY 1986-87 a sum of Rs. 4,09,432.80 plus Rs. 15,075,
aggregating to Rs. 4,24,507.80 was claimed. All these items of expenditure
towards licence fee as well as interest as claimed by the Assessee were
allowed by the AO. For three AYs, i.e., 1984-85 to 1986-87 these orders
were allowed to be become final.

17. For AY 1987-88, the Assessee claimed deduction of Rs. 13,50,000
towards licence fee payable and a further sum of Rs. 5,13,282.28 towards
interest. The amount actually paid to the NDMC towards rent was Rs.
7,16,472 in terms of the interim order passed in the suit as upheld by the
High Court. The AO allowed the licence fee actually paid and thereby
disallowed the licence fee to the extent of Rs. 6,63,556. The interest amount
claimed in the sum of Rs. 5,13,282, not having been actually paid by the
Assessee, was disallowed.

18. Against this order, the Assessee went in appeal before the CIT (A) who
by an order dated 24th October 1990 reversed the order of the AO and
deleted the additions made by the AO. The CIT (A) agreed with the
Assessee that the amounts payable to NDMC towards liability had already
accrued and deleted the addition made by the AO. The CIT (A) referred to
the decision in Kedarnath Jute Manufacturing Co. Ltd. v. Additional
Commissioner of Income Tax (1971) 82 ITR 363 (SC).



ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                          Page 12 of 31
19. Aggrieved by the order of the CIT (A), the Revenue went in appeal
before the ITAT. By an order dated 31st October 2002 the ITAT reversed the
order of the CIT (A) sustaining the additions made by the AO. ITA No. 354
of 2003 filed by the Assessee in this Court pertains to AY 1987-88.

20. It must be mentioned at this stage that the order passed by the ITAT on
31st October 2002 allowing the Revenue's appeal was common to the other
appeals of the Revenue for AYs 1988-89 and 1989-90. For the said AYs as
well, the facts are more or less similar with the AO disallowing the licence
fee to the extent not actually paid to NDMC and the interest amounts as
claimed by the Assessee.

21. For AYs 1990-91, 1991-92 and 1992-93, the AO following the orders of
the earlier years and disallowed the deduction of the licence fee to the extent
not paid to NDMC and interest amount. Thereafter, the orders of the CIT
(A) accepting the Assessee's plea were reversed by the ITAT by its common
order dated 21st October 2005. The said common order was also common to
AYs 1995-96 and 1998-99.

22. As regards AYs 1993-94 and 1994-95 the Assessee's claim for licence
fee in the sum of Rs. 13,50,000 (after apart from the head office rent of Rs.
30,000) as well as the claim for interest was fully allowed by the AO. For
some reason, the Revenue did not question the said orders by invoking
powers under Section 263 of the Act and therefore the assessment orders for
the said two AYs, i.e., 1993-94 and 1994-95 became final.

23. However for the AY 1995-96 the AO again disallowed licence fee to the

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                            Page 13 of 31
extent not paid as well as the interest amounts claimed. Whereas for the AY
1998-99, the AO allowed the license fee claimed completely while
disallowing the interest amounts claimed. For both the AYs, i.e., 1995-96
and 1998-99, again the CIT (A) allowed the Assessee's appeal whereas
ITAT reversed it and allowed the Revenue's appeal by the common order
dated 21st October 2005.

24. For AY 1996-97, the Assessee claimed for both licence fee of Rs.
13,50,000 (after apart from the head office rent of Rs. 30,000) as well as
interest amount which were all fully allowed by the AO. This order has
again not been questioned by the Revenue under Section 263 of the Act and
therefore became final for the said AYs.

25. The very next year, i.e., AY 1997-98, the AO again adopted a different
approach. The entire licence fee of Rs. 13,50,000 and head office rent of Rs.
90,000 as claimed by the Assessee was fully allowed. However, the interest
amount claimed in the sum of Rs. 10,43,701 was disallowed. The CIT (A)
dismissed the Assessee's appeal by an order dated 27th November 2007
following the orders of the ITAT in the Assessee's own case in previous
AYs (i.e., ITAT orders dated 31st October 2002 and 21st October 2005). The
ITAT by its order dated 25th May 2009 affirmed this order of the CIT (A).

26. It must be mentioned at this stage that the order passed by the CIT (A)
on 27th November 2007 for AY 1997-98 was common to that AY as well as
AYs 1999-00 and 2003-04. The order of the ITAT dated 25th May 2009
which affirmed the order of the CIT (A) was again common to three AYs,
i.e., 1997-98, 1999-00 and 2003-04. The ITA Nos. 1273, 1274 and 1277 of
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                          Page 14 of 31
2009 have been filed by the Assessee in this Court against the said common
order dated 25th May 2009 passed by the ITAT.

27. For AYs 2000-01 and 2001-02, the AO followed the decision of the
ITAT in the Assessee's case for the previous AYs (i.e., ITAT orders dated
31st October 2002 and 21st October 2005) and disallowed the claim for
interest while fully allowing the claim for License fee. This was upheld by
the CIT(A) and in turn affirmed by the order of the ITAT dated 20 th
December 2006.

28. The above narration is incomplete without adverting to the facts in
respect of the intervening AYs. For AY 2002-03, the entire licence fee of
Rs. 54,30,450 and head office rent of Rs. 1,80,000 as well as the interest
amount of Rs. 7,39,440.01 was fully allowed as deducted by the AO. This
order was not questioned by the Revenue any further.

29. From AYs 2004-05 to 2008-09, the licence fee in the sum of Rs.
47,66,196, the head office rent of Rs. 1,80,000 and provision of interest
amount in the sum of Rs. 7,19,078.18 was allowed in its entirety by the AO
and the orders for the said AYs from 2004-05 to 2008-09 were not
questioned by the Revenue under Section 263 of the Act. Therefore, the said
assessment orders attained finality.

30. The upshot of the narration of facts is that the AO allowed the amount of
licence fee and interest in its entirety as claimed by the Assessee for AYs
1993-94, 1994-95, 1996-97, 2002-03 and 2004-05 to 2008-09. Also, the AO
allowed the licence fee as claimed by the Assessee, in the sum of Rs.

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                          Page 15 of 31
13,50,000 for AYs 1993-94, 1994-95, 1996-97 to 2001-02, a sum of Rs.
54,30,450 for AY 2002-03, a sum of Rs. 45,49,548 for AY 2003-04, a sum
of Rs. 47,66,196 for AYs 2004-05 to 2007-08 and a sum of Rs. 35,74,647
for AY 2008-09.

Submissions of Senior counsel for the Assessee
31. This Court has heard the submissions of Mr. C.S. Aggarwal, learned
Senior counsel for the Appellant and Ms. Suruchi Aggarwal, learned Senior
standing counsel and Mr. Zoheb Hossain, learned Junior standing counsel
for the Revenue respectively.

32. It is submitted by Mr. C.S. Aggarwal, learned Senior counsel for the
Appellant-Assessee that the AO made an error in disallowing the licence fee
payable only on the ground that the Assessee had disputed its liability by
initiating proceedings in the lower courts "as well as in this Court" and
obtaining interim orders on the strength of which it was required to pay an
additional 30% of the licence fee that is due till the disposal of the suit by
the Sub Judge.

33. Mr. Aggarwal pointed out that the Assessee was maintaining its accounts
on the basis of the mercantile system. In terms thereof, a liability already
accrued, though liable to be discharged at a future date, would be properly
claimed for deduction while working out the profits and accounts in the
business. It is not necessary that the deduction should be allowed only after
the amount was actually paid. A condition, whose fulfilment might result in
the reduction or even extinction of such liability, would not have the effect
of converting that liability into a contingent liability. According to him, the
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                           Page 16 of 31
liability owed in the form of licence fee and interest to the NDMC was an
`ascertained' liability. What the Assessee's challenge, according to him, was
towards the enhancement of the licence fee and this was not to deny the
liability to pay the licence fee in terms of the original agreement entered into
with NDMC.

34. Mr. Aggarwal placed reliance on the decision of this Court in R.C.
Gupta v. Commissioner of Income Tax (2008) 298 ITR 161 (Del) and the
decisions referred therein namely, Kedarnath Jute Manufacturing Co. Ltd.
& CIT (1971)82 ITR 363 (SC), J.K. Synthetics Limited v. O.S. Bajpai, ITO
(1976) 105 ITR 864 (All), Swadeshi Cotton Mill Co. Ltd. v. CIT (1980) 125
ITR 33 (All), Union of India v. J.K. Synthetics Ltd. (1993) 199 ITR 14
(SC) and Bharat Earth Movers v. CIT (2000) 245 ITR 428 (SC). A
reference was also made to the decisions in Calcutta Co. Ltd. v.
Commissioner of Income Tax, West Bengal (1959) 37 ITR 1(SC), CIT v.
S.P. Jaiswal Estates (P) Ltd. (1995) 214 ITR 448 (Cal) and CIT v. Dalmia
Dairy Industries Ltd. (1991) 189 ITR 167 (Del).

35. Mr. Aggarwal also stressed on the principle of consistency and pointed
out that there were 14 AYs in which the case of the Assessee was accepted
in toto by the Revenue and that there was no questioning of the orders of the
AO in which the entire amounts that were payable towards licence fee as
well as the provision of interest as claimed by the Assessee was allowed.
This was the position as regards AYs 1982-83 to 1986-87, 1993-94, 1994-
95, 1996-97, 2002-03, 2004-05 to 2008-09. Mr. Aggarwal referred to the
decision in CIT v. Excel International Limited (2013) 358 ITR 295 (SC)

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                            Page 17 of 31
which affirmed the earlier decision of the Supreme Court in Radhasoami
Satsang Saomi Bagh v. CIT (1992)193 ITR 321(SC).

Submissions of counsel for the Revenue
36. It was submitted by Ms. Suruchi Aggarwal and Mr. Zoheb Hussain,
learned counsels for the Revenue, that it was not open to the Assessee to
approbate and reprobate as regards its liability to pay the licence fee. When
it came to the question of actually paying the licence fee to the NDMC the
Assessee sought to avoid its liability. Having taken such a stand in the suit
as well as in the writ petition before the High Court, the Assessee should not
be allowed to contend that its liability for payment of the licence fee and
interest on the arrear of licence fee was an ascertained liability. As long as
the interim order of the High Court granted status quo, which was at the
instance of the Assessee itself, the Assessee was not under any obligation to
make payment of the licence fee and therefore, avoided making such
payment. It is accordingly, submitted that the AO was fully justified in
disallowing the claim for deduction of licence fee and the corresponding
interest to the extent it was not actually paid by the Assessee to NDMC.

37. As regards the claim for consistency, it is pointed out that each
assessment orders have to be separately considered. As far as the five three
years are concerned, i.e., 1982-83 to 1986-87, with the Assessee having not
successfully challenged its liability to make payment, the AO was justified
in allowing the amount as claimed by the Assessee towards payment of
licence fee and interest towards arrears of licence fee. However, from 1987-
88 the scenario changed with the Assessee's challenge to the enhanced

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                           Page 18 of 31
demand for licence fee being decided by the High court vide its order dated
14th January 1987. It is only with this decision that it made it clear that the
Assessee was entitled to a status quo and that it was liable to pay only
original licence fees of Rs. 5,51,111 plus an additional 30%, i.e., Rs.
1,65,333/- which worked out to Rs. 7,16,444/ - per annum.

38. It is further submitted that the orders for any other AYs where the entire
amount as claimed by the Assessee towards licence fee has been allowed
will not make a difference to the legal position that the Assessee would not
be entitled for claim of deduction for licence fee which in fact is not paid to
NDMC. It is further contended that a distinction has to be made between a
statutory liability and a liability based upon a contractual obligation. It is
only in the case of a statutory liability that the actual quantification or
ascertainment of liability would not postpone the accrual thereof in the
mercantile system of accounting. The decision in Kedarnath Jute
Manufacturing (supra) is sought to be distinguished on the ground that it
was rendered in the context of sales tax liability which was a statutory
liability whereas in the present case the Assessee's liability is contractual. It
is further submitted that with the Assessee having seriously disputed its
contractual liability, such liability could not be said to have become
ascertained or crystallized till the question is finally settled by the Court.
With the suit questioning legality of the agreement dated 20th September
1980 yet to be finally adjudicated by the Court, till the time of the
assessments in question, the AO was justified in permitting deduction only
to the extent of original licence fee plus 30%.



ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                             Page 19 of 31
Ascertained or accrued liability
39. The question as to when a liability can be said to be ascertained one has
arisen in the context of both a statutory liability and a contractual liability.
An example of a statutory liability is the case of Kedarnath Jute
Manufacturing Co. Ltd. (supra). There the Assessee followed the
mercantile system of accounting. The relevant AY was 1955-56. The
Assessee had in the calendar year 1954, i.e., the relevant previous year,
incurred a liability of Rs. 1,49,776/- on account of sales tax determined as
payable by the Sales Tax Authorities on the sales made by it. The sales tax
demand had already been raised. The Assessee had contested the sales tax
liability by filing an appeal. It had also not made any provision in its books
as regards payment of the said amount. On these two grounds, the AO
rejected the Assessee's claim for deduction. Holding for the Assessee, the
Supreme Court held that although the sales tax liability could not be
enforced till the quantification was effected in the assessment proceedings,
since the Assessee had followed the mercantile system of accounting it was
entitled to deduct from the profits and gains of the business such liability
which had accrued during the period for which the profits and gains were
being computed. It was held that the liability did not cease to be a liability
only because the Assessee had challenged it in the higher forum. Also the
fact that the Assessee had failed to debit the liability in its books of accounts
did not prevent it to claim the said sum as deduction either under Section
10(1) or under Section 10(2)(xv) of the Income Tax Act, 1922. It was held
"whether the Assessee is entitled to a particular deduction or not will depend
on the provision of law relating thereto and not on the view which the
Assessee might take of his rights; nor can the existence or absence of entries
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                             Page 20 of 31
in his books of account be decisive or conclusive in the matter."

40. This was in line with the earlier decision in Calcutta Co. Ltd. v.
Commissioner of Income Tax, West Bengal (1959) 37 ITR 1 (SC) where
the Supreme Court explained that an Assessee following the mercantile
system of accounting could claim a deduction of an estimated expenditure
towards development of plots purchased by it even before actually incurring
the expenditure. This was not a statutory liability but a contractual one. The
Assessee in that case was a developer dealing in land and property. The
Supreme Court noted that the relevant clauses of the sale deed spelt out the
undertaking of the Assessee "to carry out the developments within six
months from the date of the sale." It was noted that although the entire sale
consideration was not received during the relevant AY, the Assessee had
nevertheless entered it into the credit side of its books of accounts. Likewise
it debited the estimated sum of expenditure towards development although
"no part of that amount represented any expenditure actually made during
that year." Explaining the mercantile system of accounting, the Court
referred to an earlier decision in Keshav Mills Ltd. v. Commissioner of
Income Tax, Bombay (1953) 23 ITR 230 (SC) in which it was described as
under:
                "That system brings into credit what is due, immediately it
                becomes legally due and before it is actually received and it
                brings into debit expenditure the amount for which a legal
                liability has been incurred before it is actually disbursed."

41. The Supreme Court in Calcutta Co. Ltd. v. Commissioner of Income
Tax, West Bengal (supra) proceeded to hold as under:

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                              Page 21 of 31
                "Inasmuch as the liability which had thus accrued during the
                accounting year was to be discharged at a future date the
                amount to be expended in the discharge of that liability would
                have to be estimated in order that under the mercantile system
                of accounting the amount could be debited before it was
                actually disbursed.

                The difficulty in the estimation thereof again would not convert
                an accrued liability into a conditional one, because it is always
                open to the Income-tax authorities concerned to arrive at a
                proper estimate thereof having regard to all the circumstances
                of the case."

42. The Supreme Court Calcutta Co. Ltd. v. Commissioner of Income Tax,
West Bengal (supra) also explained that since the Assessee was being
assessed in respect of the profits and gains of its business, the same could
not be determined "unless and until the expenses of the obligations which
have been incurred are set off against the receipts." It was observed as
under:
                "The expression profits and gains has to be understood in its
                commercial sense and there can be no computation of such
                profits and gains until the expenditure which is necessary for
                the purpose of earning the receipts is deducted therefrom-
                whether the expenditure is actually incurred or the liability in
                respect thereof has accrued even though it may have to be
                discharged at some future date. As was observed by Lord
                Herschell in Bussel v. Town and County Bank, Ltd. (1888) 13
                App. Cas. 418:

                         "The duty is to be charged upon `a sum not less than the
                         full amount of the balance of the profits or gains of the
                         trade, manufacture, adventure, or concern'; and it appears
                         to me that that language implies that for the purpose of
                         arriving at the balance of profits all that expenditure
                         which is necessary for the purposes of earning the
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                                Page 22 of 31
                         receipts must be deducted, otherwise you do not arrive at
                         the balance of profits, indeed, otherwise you do not
                         ascertain, and' cannot ascertain, whether there is such a
                         thing as profit or not. The profit of a trade or business is
                         the surplus by which the receipts from the trade or
                         business exceed the expenditure necessary for the
                         purpose of earning those receipts. That seems to me to be
                         the meaning of the word "profits" in relation to any trade
                         or business. Unless and until you have ascertained that
                         there is such a balance, nothing exists to which the name
                         `profits' can properly be applied."

43. In Bharat Earth Movers v. Commission of Income Tax (supra), the
Supreme Court had an occasion to explain the distinction between accrued
and contingent liability. There the Assessee Company had two sets of
employees ­ one covered by the Employees State Insurance Scheme
(described as `staff') and the other not so covered (termed as `officers'). The
Assessee had floated beneficial schemes for its employees for encashment of
leave in terms of which the officers were entitled to thirty days earned leave
whereas the staff were entitled to eighteen days vacation leave. While the
earned leave could be accumulated up to 240 days, the vacation leave could
be accumulated up to 126 days. Either leave could be encashed subject to
the ceiling on accumulation. There was an option to avail the accumulated
leave or in lieu thereof to apply for encashment whereupon the staff or the
officer concerned would be paid salary for the period of leave earned but not
availed. A fund was created by the Assessee for meeting this liability and
during the AY 1978-79, a sum of Rs. 62,25,483/- was set apart for the
purpose of encashment of the leave. Although the ITAT held the Assessee
to be entitled to claim the said sum as deduction, the High Court was of the
view that it was not. The Supreme Court explained as under:
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                                 Page 23 of 31
                "The law is settled: if a business liability has definitely arisen in
                the accounting year, the deduction should be allowed although
                the liability may have to be quantified and discharged at a
                future date. What should be certain is the incurring of the
                liability. It should also be capable of being estimated with
                reasonable certainty though the actual quantification may not be
                possible. If these requirements are satisfied the liability is not a
                contingent one. The liability is in present though it will be
                discharged at a future date. It does not make any difference if
                the future date on which the liability shall have to be discharged
                is not certain."

44. The Supreme Court referred to an earlier decision in Metal Box
Company of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC) in which
inter alia it was explained as under:
                "(i) For an assessee maintaining his accounts on mercantile
                system, a liability already accrued, though to be discharged at a
                future date, would be a proper deduction while working out the
                profits and gains of his business, regard being had to the
                accepted principles of commercial practice and accountancy. It
                is not as if such deduction is permissible only in case of
                amounts actually expended or paid;

                (ii) Just as receipts, though not actual receipts but accrued due
                are brought in for income-tax assessment, so also liabilities
                accrued due would be taken into account while working out the
                profits and gains of the business;

                (iii) A condition subsequent, the fulfilment of which may result
                in the reduction or even extinction of the liability, would not
                have the effect of converting that liability into a contingent
                liability;

                (iv) A trader computing his taxable profits for a particular year
                may properly deduct not only the payments actually made to his
                employees but also the present value of any payments in respect
                of their services in that year to be made in a subsequent year if
ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                                 Page 24 of 31
                it can be satisfactorily estimated."

45. The Supreme Court in Bharat Earth Movers v. Commission of Income
Tax (supra) held that the provision made by the Assessee for meeting its
liability under the leave encashment scheme would entitle it to deduction
since it was not a contingent liability.

46. The above dictum was followed by this Court in R.C. Gupta v.
Commissioner of Income Tax (supra). In that case the AO on scrutiny of
the Assessee's trading account noticed that a sum of Rs. 50,761/- stood
debited to the raw material account. The Assessee explained that this was
payable to Hindustan Steel Limited (HSL) for purchases made on 22 nd
October, 1975 but in respect of which the Assessee had disputed its liability.
A suit for recovery had been filed by the HSL against the Assessee. The AO
disallowed the claim on the ground that the amount did not relate to any
purchases made during the previous year relevant to the AY in question.
While the CIT(A) allowed the Assessee's appeal holding that the liability
had accrued during the accounting year ending 31st March, 1979, the ITAT
reversed the CIT(A). Allowing the Assessee's appeal this Court explained
that the liability was capable of being estimated with reasonable certainty
where a recovery suit was filed by HSL. "Merely because the liability was
not a statutory one it could not be said that the liability that was not an
ascertained one but a contingent one."


47. A conspectus of the above decisions reveals that whether a liability is
ascertained or contingent is dependent on the facts of each case. Merely

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                           Page 25 of 31
because a liability may be contractual or non-statutory would not make it
incapable of being ascertained. Where an Assessee follows the mercantile
system of accounting it is not necessary that the liability must have actually
been incurred during the AY in question to enable the Assessee to claim it as
an expense or deduction as the case may be. The crux of the matter is the
reasonable certainty with which the liability can be ascertained.

48. Coming to the facts of the present case it is not as if the Assessee has
disputed its liability to pay licence fee. In other words during the AYs in
question it continued to pay the annual licence fee to the NDMC and in
those years it was protected in terms of an interim order. What was being
disputed by the Assessee in the suit initiated by it against the NDMC was
the reasonableness of the enhancement of the licence fee at the stage of
renewal of the licence. There is a distinction, therefore, to be drawn between
disputing the liability as such and disputing the reasonableness of the
enhancement of the licence fee.

49. What appears to have weighed with the CIT(A) as well as the ITAT in
the impugned order in these cases is that in the suit filed by the Assessee an
averment was made that it had not voluntarily signed on the Agreement
dated 23rd September, 1980 and had averred that the Agreement having been
"got signed by the NDMC authorities from the Directors under undue
influence and coercion is illegal and not enforceable in law." What also
weighed with the ITAT is that the Assessee could not on the one hand
challenge the validity of the said agreement and on the other urge the
Department to act upon it because it is beneficial to the Assessee.

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                              Page 26 of 31
50. There appears to be a misconception on the question regarding an
accrued liability in the hands of the Assessee in the above circumstances. In
terms of the interim orders passed by the Court which were conditional upon
the Assessee making a certain payment, what was being made clear was that
the Assessee's contention regarding legality of the renewed licence
agreement was still to be determined. In other words, the Assessee could
not, during the pendency of the suit, claim that it had no liability under the
renewed licence agreement. It was granted interim protection on the express
understanding that it would abide by the interim order of the Court which
was in itself an acknowledgement that the liability under the renewed
licence deeds continue as long as the suit is pending. However, the only
concession was that the Assessee would pay the reduced licence fee for the
renewed period which was 30 per cent over and above the original licence
fee. In the circumstances, there was no question of there being no liability
on the Assessee whatsoever for the renewal of the licence. Merely because
the Assessee had chosen to challenge in Court the enhancement of the
licence fee, which was permissible to be raised by it in accordance with law,
did not preclude the Assessee, which was following the mercantile system of
accounting, from claiming it as a liability during the AYs in question. The
Court, therefore, does not, in view of the averments made by the Assessee in
the pleadings in the suit filed by it against the NDMC, as a reason to
preclude the Assessee from claiming the licence fee, the head office fee and
the interest on arrears payable to the NDMC in terms of the renewed licence
deed as a liability for the AYs concerned.


ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                           Page 27 of 31
51. The ITAT also appears to have drawn a distinction between a statutory
liability and a contractual liability and opined that a deduction in respect of
the contractual liability would be permissible "only when the disputes are
settled." This is contrary to the legal position as explained in the above
decisions of the Courts. Even where a challenge is laid to a liability arising
under a contract, by a challenger initiating legal proceedings, such
challenger can still for the purposes of its accounts and for the purposes of
computation of its income tax liability claim the entire amount under
challenge as an accrued liability as long as such amount is ascertainable.
Corresponding adjustments would be made in the year in which the suit is
finally decided or the disputes settled. That, however, would not preclude
the Assessee from claiming it as an ascertained liability.




The rule of consistency
52. The ground urged on behalf of the Assessee as regards consistency also
merits acceptance. There is indeed a demonstrable inconsistency in the
Revenue's stand in the matter. While the Assessee consistently claimed
liability towards licence fee, the Revenue appears to have accepted it in its
entirety some years and not in some others. In AYs 1982-83 to 1986-87, the
AO fully allowed the amount as claimed in respect of the licence fee as well
as interest by the Assessee in terms of the Agreement dated 23 rd September,
1980. Without there being any particular change in the circumstances other
than the order of the High Court confirming the interim order passed by the
trial court, which position continued even in AY 1982-83, the AO restricted
the allowance from AYs 1987-88 to 1992-93 to actual payment of licence
fee made and disallowed the difference between the claimed amount and the

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                           Page 28 of 31
amount actually paid.             Again, without there being any change in the
circumstances in AYs 1993-94 and 1994-95, the Assessee's claim towards
payment of licence fee as well as interest is fully allowed by the AO in terms
of the Agreement. Again for one AY 1995-96, the AO did not fully allow
the claim. In the very next AY, 1996-97, the claim was fully allowed. For
AYs 1997-98 to 2001-2002, while the claim towards payment of licence fee
was fully allowed in terms of the Agreement, the claim towards interest for
arrears of rent was disallowed. Even as pointed out by the Assessee in 1997-
98, the actual amount paid by it towards interest was in excess of the amount
claimed by it and yet the interest amount actually paid was not allowed.

53. However, for AY 2002-2003, the amount as claimed by the Assessee
towards licence fee and interest was fully allowed. In AY 2003-2004, the
interest due against arrears of licence fee up to 30th September, 2002 was
disallowed. In the last set of years, i.e., AYs 2004-2005 to 2008-2009, the
Assessee's claim towards licence fee and interest was fully allowed. This is
indeed an extraordinary case of the Revenue continuously changing its stand
during the AYs in question. The Supreme Court in Radhasoami Satsang
Saomi Bagh v. CIT (supra) commented upon the approach of the Revenue
in changing its stand from one AY to another, as under:
        "16. We are aware of the fact that strictly speaking res judicata does
        not apply to income tax proceedings. Again, each assessment year
        being a unit, what is decided in one year may not apply in the
        following year but where a fundamental aspect permeating through
        the different assessment years has been found as a fact one way or the
        other and parties have allowed that position to be sustained by not
        challenging the order, it would not be at all appropriate to allow the
        position to be changed in a subsequent year."

ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                             Page 29 of 31
54. The Supreme Court in Radhasoami Satsang Saomi Bagh (supra) cited
with approval the following observations of the Privy Council in
Hoystead v.Commissioner of Taxation 1926 AC 155 (PC):


        "Parties are not permitted to begin fresh litigation because of new
        views they may entertain of the law of the case, or new versions
        which they present as to what should be a proper apprehension by the
        court of the legal result either of the construction of the documents or
        the weight of certain circumstances. If this were permitted, litigation
        would have no end, except when legal ingenuity is exhausted. It is a
        principle of law that this cannot be permitted and there is abundant
        authority reiterating that principle. Thirdly, the same principle,
        namely, that of setting to rest rights of litigants, applies to the case
        where a point, fundamental to the decision, taken or assumed by the
        plaintiff and traversable by the defendant, has not been traversed. In
        that case also a defendant is bound by the judgment, although it may
        be true enough that subsequent light or ingenuity might suggest some
        traverse which had not been taken."

55. This legal position was recently reiterated by the Supreme Court it in
CIT v. Excel International Limited (supra) as under:
        "31. It appears from the record that in several assessment years, the
        Revenue accepted the order of the Tribunal in favour of the assessee
        and did not pursue the matter any further but in respect of some
        assessment years the matter was taken up in appeal before the
        Bombay High Court but without any success. That being so, the
        Revenue cannot be allowed to flip-flop on the issue and it ought let
        the matter rest rather than spend the tax payers' money in pursuing
        litigation for the sake of it."

56. Consequently on the rule of consistency, the case of the Revenue for the
AYs in question cannot be accepted.



ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                             Page 30 of 31
Conclusion
57. For the above reasons, the Court holds that the ITAT was in error in
declining the plea of the Assessee for the AYs in question with regard to the
full claim of the payment towards licence fee and interest on the arrears of
licence fee. The question framed is answered in the negative, i.e., in favour
of the Assessee and against the Revenue.

58. The impugned orders of the ITAT and the corresponding orders of the
AO which were upheld by the ITAT are hereby set aside. The appeals are
accordingly allowed, but with no order as to costs.



                                                            S.MURALIDHAR, J.



                                                            VIBHU BAKHRU, J.
JANUARY 21, 2016
b'nesh/Rk




ITA Nos.353, 354, 355/2003; 767, 769, 770, 801, 876/2006;
1122, 1123/2007; 1273, 1274, 1277/2009                               Page 31 of 31

 
 
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