1.Provision for increase in wages.

The manner in which the assessee recorded its liability in its books of accounts is not conclusive, for the test to be applied, in cases where an assessee is regularly maintaining its books of accounts on the mercantile system of accounting, is when the liability accrued, and it is only on the date of accrual of such expenditure can the assessee claim its deduction from their income during the relevant previous years. The liability to pay tax on the income arises when it has arisen or accrued, and how the assessee deals with it subsequently does not affect that liability. The provisions of fiscal statutes must be strictly construed and, if the assessee falls within the letter of the law, he must be taxed. His liability to pay tax cannot be determined relying on its possible consequences of whether or not it would make any difference if the deduction is claimed in one year or the other. The consequences of the liability being held to arise in a previous year, different from the previous year in which the liability actually arose, are many. Q.No.1 “ Whether ,on the facts and in the circumstances of the case  the provision made for increase in wages on the basis of Wage Board Award which became enforceable on the date of publication of the award on 20 -7 .1983 could be accepted as a liability having accrued on 19-5 1983 with in the previous year ended 0n 30-06 1983 , when the assessee agreed before the Arbitrators that the award shall come in to operation from an earlier date ?  is answered in the negative, against the assessee and in favour of the Revenue.

Q.No.2: Commission .-

The question whether liability has arisen to the assessee, during the relevant previous year, must be determined on a reading of the clauses in the agreement as a whole, and not piece meal. While the assessees agents had secured an order during the previous year, relevant to the assessment year 1984-85, supplies were effected in the subsequent previous years. The agreement entered into by the assessee with its two agents in Sri Lanka viz., Eastern Indian Company Limited and Global Commercial Agencies Limited must, therefore, be read as a whole to determine when the liability of the assessee, to pay commission to these two agents, arose. A plain reading of the relevant clauses in the agreement, entered into between the assessee and Global Commercial Agencies, shows that the agent was to be paid consideration of 1% on the FOB value of the machinery and equipment supplied by the assessee to the Sugar Corporation, and also on the consideration received by the assessee for services rendered in Sri Lanka towards erection and civil works. Payment of commission was required to be made only after supplies were made by the assessee to the Sugar Corporation. Clause (d) stipulated that the commission shall be paid to the agents or their nominees in Sri Lanka. Clause (e) is relevant. It stipulated that the consideration, as referred to in the earlier clauses, would arise only on the assessee securing the order. It is evident therefore that, while the liability of the assessee to pay commission to its agents accrued, in terms of clause (e), on the agent securing the order, actual payment of commission was to be made, at 1% of its FOB value, on the supply of machinery and equipment to the client as well as on the consideration received by the assessee for services rendered by them for erection and civil works. As the assessee maintained its books of accounts, under the mercantile system of accounting, their liability to pay commission to the agents arose in the relevant previous year in which the agent secured the order; and as, in the present case, both the agents had secured orders from the clients in Sri Lanka, during the previous year relevant to the assessment year 1984-85, the Tribunal has, in our view rightly, held that the liability to pay commission accrued when the orders were secured by the agents, and not when supplies were effected by the assessee. This question is answered in the affirmative, in favour of the assessee, and against the Revenue.

1. No.3: Insurance Premium .

For instance, under the very same insurance policy, if the risk, for which the policy was taken, had occurred before 30.06.1983, the assessee would not have been entitled to claim insurance for the damage or loss suffered by it, since the conditions of the insurance policy explicitly stipulated that the terms and conditions of the insurance policy would apply only on payment of the insurance premium. It is only on the date on which the insurance premium is paid or, in terms of the facility extended by the Insurance Corporation of Sri Lanka, the first installment, of the insurance premium payable in four installments, is actually paid, can the assessee claim that the liability to pay the insurance premium had arisen. As, admittedly, no amount was paid towards insurance premium, in the previous year 01.07.1982 to 30.06.1983 (as is evident from the letter of the Insurance Corporation of Sri Lanka dated 30.06.1983), the liability towards the insurance policy did not arise in the previous year 01.07.1982 to 30.06.1983, since the basic condition, relating to actual payment of insurance premium, had not been fulfilled by the assessee by then. This question is also answered in the negative, in favour of the Revenue and against the assessee.

Q.4. Commission .

The obligation to pay commission, in terms of Clause(1) of the agreement, is on the procurement of an order by the agent, and the agent had procured the order during the previous year 01.07.1982 to 30.06.1983. Notwithstanding the fact that the obligation to make payment of commission was dependent on receipt of payment from the client, the liability to pay commission arose on the date on which the order was procured by the agent. The view taken by the Tribunal, that the liability arose, on the date on which the order was procured by M/s. Annapurna Agencies, is a possible view. Even if the view taken by the revenue is presumed also to be a possible view, it cannot be overlooked that, even if two views are possible, the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute. This question is answered in the affirmative, in favour of the assessee and against the revenue.

(5) Liquidated damages- Held to be allowable as business expenditure followed order of earlier year.(C. No. 71 of 1993, dt. 01.05.2018) ( AY.1984-85)

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