JUDGMENT

1. The two articles out of which these two references arise are alleged to be attacks upon <ORG> in Bengal and it is complained that they are seditious and in breach of Section 124-A, I.P.C ., which provides:

Whoever by words, either spoken or written, or by signs, or by visible representation, or otherwise brings or attempts to bring into hatred or contempt, or excites or attempts to excite disaffection towards His Majesty or the Government established by law in British India, shall be punished with transportation for life or any shorter term, to which fine may be added, or with imprisonment which may extend to three years, to which fine may be added, or with fine.

2. Section 17 , I.P.C ., provides:

The word 'Government' denotes the person or persons authorized by law to administer executive government in any part of British India,

3. The questions asked are: Under case No. 2 of 1939,(a) whether the Hon'ble Minis, ters of Bengal are subordinate officers to H.E. the Governor within the meaning of Section 49 , Government of India Act, 1935? (b) whether <ORG> should be considered as "Government established by law."

4. Under case No. 3 of 1939, (a) whether the ministry of a Province can be said to form a part of the executive Government of that Province in the sense implied by Section 17 , I.P.C .?

The reference is under the first part of Section 432 , Criminal P.C., and asks us specific questions but does not enable us to deal completely and finally with the matter. The Government of India Act, 1935, defines the rights and duties of ministers and their relation to <ORG>.

5. Section 49(1) of the Act provides that 'the executive authority' (which is the same thing in our opinion as legal authority to administer executive Government of a Province) 'shall be exercised on behalf of His Majesty by the Governor either directly or through officers subordinate to him.'

6. Section 59 (1) provides:

All executive action of <ORG> shall be expressed to be taken in the name of the Governor.

7. Section 50 (1) provides:

There shall be a council of ministers to aid and advise the Governor in the exercise of his functions, except in so far as he is by or under this Act required to exercise his functions or any of them in his discretion.

8. Section 51 (1) provides:

The Governor's ministers shall be chosen and summoned by him, shall be sworn as members of the council, and shall hold office during his pleasure.

9. Sub-section (4) of Section 51 provides:

The question whether any, and if so what, advice was tendered by ministers to the Governor shall not be inquired into in any Court.

10. Sub-section (5) of Section 51 provides:

The functions of the Governor under this Section with respect to the choosing and summoning and the dismissal of ministers, and with respect to the determination of their salaries, shall be exercised by him in his discretion.

11. Section 53 provides that the Instrument of Instructions which it is proposed that His Majesty shall issue to the Governor shall be laid before <ORG> previous to issue. In para. 8 of the Instrument of Instructions issued to the Governor of Ben gal it is stated:

In all matters within the scope of the executive authority of the Province, save in relation to functions which he is required by or under the Act to exercise in his discretion, our Governor shall in the exercise of the powers conferred upon him be guided by the advice of his ministers, unless....

12. Section 59(3) provides:

The Governor shall make rules for the more convenient transaction of the business of <ORG>, and for the allocation among ministers of the said business in so far as it is not business with respect to which the Governor is by or under this Act required to act in his discretion.

13. There is no specific provision in the Government of India Act nor in any other Statute or Act which we are aware of vesting the ministry with executive functions. On the other hand such functions "shall", in the words of Section 49 of the Act, "be exercised by the Governor either directly or through officers subordinate to him." The use of the word "aid" in Section 50 does not, in our view, vest the ministers with any right to exercise executive authority, since such a construction would be contrary to the clear provision in Section 49 , nor can the rules for the transaction of the business of <ORG> made under Section 59(3) of the Act override or alter, in law, the same clear provisions. Again, the Instrument of Instructions, which cannot be and does not purport to be, in contradiction of the Act, clearly contemplates the Governor exercising the powers conferred upon him (save where in certain instances specified he acts alone) "guided by the advice of his ministers." The Instrument of Instructions contemplates the Governor, and not the ministers, exercising executive authority. The position appears to be that, unless the ministry can be held to consist of officers subordinate to the Governor within the meaning of Section 49(1) of the Act, it cannot exercise executive functions. In our view, ministers chosen from the elected representatives of the people of the Province for the purpose of carrying into effect, if possible and within prescribed limits, their wishes, and acting as advisers to the Governor, cannot be described as "officers subordinate" to the Governor within the meaning of Section 49 , Government of India Act, 1935. It follows therefore that although in popular language, the ministers may be referred to as "the Government" they are not "the Government" within the meaning of Sections 17 and 124-A , I.P.C . Whatever may happen in practice, the ministers are, in law, the Governor's advisers. For these reasons we are of the opinion that the answers to all the three questions put to us is No.

14. Although the Presidency Magistrates have, under Section 432 , Criminal P.C., the power to refer for the opinion of the High; Court any question of law which arises at the hearing of any case pending before them, it may be undesirable - and in our view in this case it was undesirable - to make the reference in the form it came before us. It has involved giving a decision on law, divorced to some extent from the facts. It may be that when the learned Magistrates have dealt with these charges according to law, the same matters may come before this Court on appeal. The more desirable course is for the Magistrate to use the second part of Section 432 , Criminal P.C., which provides that he may give judgment in any such case subject to the: decision of <ORG> on such reference. By adopting this course, duplicity of hearing in both Courts would probably be avoided and all the facts would be before this Court once for all. Section 205(1) , Government of India Act, 1935, provides:

An appeal shall lie to <ORG> from any judgment, decree or final order of <ORG> in British India, if <ORG> certifies that; the case involves a substantial question of law a» to the interpretation of this Act or any Order in Council made thereunder, and it shall be the duty of <ORG> in British India to consider in every case whether or not any such question is, involved and of its own motion to give or to withhold a certificate accordingly.

15. In our opinion this case involves a substantial question of law as to the interpretation of the Government of India Act, 1935. But at the same time we are of the opinion that the decision we have given is an opinion and not a judgment or decree or final order of the <ORG>. It may be that hereafter the same matter will come before us again after it has been dealt with by the Presidency Magistrates. Accordingly, we-give no certificate.


JUDGMENT

1. The facts of the case are as follows. In October 1877 the 1st defendant, the father of defendants Nos. 2 and 3, and brother of 4th defendant, borrowed a sum of Rs. 200 from <NAME>, the brother of the two plaintiffs and of 6th defendant, on the security of certain immovable property of which 5th defend ant has since become the purchaser. <NAME> having died, the plaintiffs instituted the present suit to recover 1/3rds of the amount due on the mortgage; as the other claimant, 6th defendant would not join, they made him 6th defendant and relinquished 1/3rd of the amount due. During the progress of the suit the 6th defendant was by order of the court made 3rd plaintiff, but at the time his right to recover was barred. Two contentions were raised by defendants Nos. 1 and 5, first, that the suit was not maintainable, second, that the debt had been satisfied. Both were overruled and plaintiffs Nos. 1 and 2 obtained a decree. The 5th defendant appeals.

2. By Section 22 of the Limitation Act it is proved that, " when after the institution of a suit, a new plaintiff or defendant is substituted or added, the suit shall, as regards him, be deemed to have been instituted when he was so made a party." No doubt it has been he d both by <ORG> and of Calcutta that a suit by several persons, as to some of whom the right to sue is barred is virtually a suit by the other plaintiff or plaintiffs alone and that if a suit so framed will not lie, as it will not in the case of a joint cause of action, there can be no other course than to dismiss the claim, but in the cases so decided, <NAME> v. <NAME>, I. L. R, 6 G, 815 and <NAME> v. <NAME>, I. L. B, 7 B, 219, the suit was brought by only one of the joint contractees, the other joint contractees not being parties to the suit. But in the present case the absence of the 6th defendant is satisfactorily accounted for. He was unwilling to join his brothers in the suit. They had therefore no option but to make him a defendant and to relinquish his share of the claim. There is no authority for holding that Section 22 of the Limitation Act applies when the court of its own motion acts under Section 32 , Civil Procedure Code, and orders that a defendant be made a plaintiff. All that was held in <CITATION> , 10 M, 44 was that, " the procedure of the District Judge in transforming certain defendants into plaintiffs was, under the circumstances of the case, irregular." No doubt the whole of the mortgage-debt is due to the persons claiming under the original mortgage jointly and not severally, and a person entitled to a moiety of the mortgage-debt cannot demand to be paid that moiety, Bishan Dial v. Manni Ram, I. L. E, 1 A, 297, but that ruling does not apply to a case like the present where all the parties are before the court and the matter can be finally dealt with by the decree in the suit.

3. On the merits also the second appeal must fail. The judge has found as a fact that the debt was not discharged and it is not contended that ho has misconstrued the evidence.

4. The second appeal therefore fails and is dismissed with costs.


PETITIONER: <ORG>. Vs. RESPONDENT: DIRECTOR OF INSPECTION, <ORG>, EXCISE, NEW DELHI. DATE OF JUDGMENT29/03/1985 BENCH: <NAME>, V.D. BENCH: <NAME>, V.D. ERADI, V. <NAME> (J) MISRA, R.B. (J) CITATION: 1985 AIR 867 1985 SCR (3) 575 1985 SCC (2) 719 1985 SCALE (1)672 CITATOR INFO : D 1989 SC 516 (45,46) ACT: Income Tax Act 1961 Section 280ZD Tax Credit Certificate (Excise Duty on Excess Clearance) Scheme 1985 & Finance Act 1965, Section 80 Manufacturer of cement-Whether entitled to Tax Credit Certificate in respect of special Excise duty levied under Finance Act 1965, Words & Phrases: Duty of excise-Meaning of- Section 280ZD (6) (b) Income Tax Act 1961. . HEADNOTE: The Tax Credit Certificate (Excise Duty on Excess Clearance) Scheme 1965 was framed by <ORG> under s. 280ZD of the Income Tax Act 1961. It was made applicable to the Cement Industry in 1985. For the year 1965-66, the excise duty for Cement levied under the Central Excise and Salt Act 1944 was Rs. 23.60 per ton, but under s. 80 of the Finance Act 1965 a special duty of excise equal to 25% of the total amount of excise chargeable under the Excise Act on various articles including cement was levied. The appellant company on the excess Clearance of cement made during the concerned year 1965-66 over and above the quantity cleared in the base year (financial year 1964-65) applied for the grant of tax credit certificate to the concerned authority. The authority however, granted tho, Tax Credit Certificate only in respect of the Central Excise Duty levied under the Excise Act , taking the view that the appellant was not entitled to have any tax credit in respect of any other excise duty levied under a different enactment, namely, s. 80 of the Finance Act. 576 The appellant company challenged in <ORG>. .Theafore said view, but it was rejected on the ground that tax credit would not be available to The appellant-company in respect of the, special excise duty levied under s.80 of the linance Act, 1965 having regard to the special meaning assigned to the expression 'duty of excise' by clause (b) of sub-section (6) of section 280ZD Dismissing the appeals and Special leave Petitions to this Court. ^ HELD: 1. Under s. 280ZD (I) a manufacturer of the concerned goods is entitled to be granted a tax credit certificate for an amount calculated at the rate not exceeding 25% of "the amount of duty of excise payable by him" on that quantum of the goods cleared by him during the relevant financial year which exceeds the quantum of goods cleared by him during the base year and clause (b) of sub- sect on (6) of section 280ZD defines the expression 'duty of excise' for the purpose in a special manner, as "the duty of excise leviable under the Central Excise and Salt Act ]944". [578C-E] 2. Sub clause (3) & (4) of s. 80 of the Finance Act, 1965 refer to the procedural aspect such as the quantification and collection of duty. Simply because the quantification and collection of special duty under the Finance Act is to be done in the manner indicatcd under the Excise Act , such duty does not become leviable that is chargeable under the Excise Act . [578G- <CITATION> . and Anr,. 114 ITR 616, over-ruled. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1201-03 Of 1972 From the Judgment and Order dt. 30.4.1971 of <ORG> in Civil Writ No. 12)7/67, 455/68 & 16/70.

WITH Special Leave Petitions (Civil) NOS. 2820-23 of 1977. From the Judgment and order dt. 18.1.1977 of <ORG> in Letters Patent Appeals Nos. 3 to 6 of 1977.

<NAME>, <NAME> and <NAME> for the Appellant in C.A. Nos. 1201-03172.

<NAME> for the Petitioners in SLPs Nos. 2820- 23 of 1977.

<NAME>, <NAME> and <NAME> for tbe Respondents in C.A. Nos. 1201-03/72.

The Order of the Court was delivered by TULZAPURKAR, J. Two contentions under a Scheme called "Tax Credit Certificate (Excise Duty on Excess Clearance) Scheme, 1965" framed by <ORG> under s. 280 ZD of the Income Tax Act, 1961, which were negatived by <ORG>, have again been pressed by the appellant company before us in these appeals but after hearing counsel for the appellant company at some length and after going through the relevant provision of the said Scheme, relevant section of the Income Tax Act , 1961 and s. 80 of the Finance Act 1965 we are satisfied that <ORG> was right in the view which it took on both the contentions and the appeals deserve to be dismissed.

With a view to encourage investment in new equity shares and to stimulate industrial output <ORG> introduced certain special provisions in Chapter XXII- B of the Income Tax Act, 1961 for the grant of tax credit certificate and s. 230ZD is one of such Provisions which provides for the grant of tax credit certificate by way of incentive for increased production of goods and the "Tax Credit Certificate (Excise Duty on Excess Clearance) Scheme 1965" was framed by <ORG> under this section and it was made applicable to the cement industry in 1965. Under the Scheme the amount of tax credit to which a manufacturer of cement is entitled is calculated at a rate not exceeding 25% of the amount of the duty of excise payable by him on the quantity of excess production during the financial year as compared to the production in the base year and the financial year 1964-65 is defined as the base year in relation to an existing undertaking. For the year 1 965-66 being the concerned year in the instant case the excise duty for cement levied under the Central Excises and Sa<ORG> Act , 1944 (for short the Excise Act ) was Rs. 23.60 per ton but under s. 80 of the Finance Act 1965 a special duty of excise equal to 25% of the total amount of excise chargeable under the Excise Act on various articles including cement was levied. On the excess clearance of cement made during the concerned year over and above the quantity cleared in the base year the appellant Company applied for the grant of tax credit certificate to the concerned authority under the Scheme for an amount calculated at the rate of 25,' of the entire amount of duty of excise paid by it, that is to say, 25% of the basic excise duty levied under the Excise Act at Rs. 23.60 per ton plus the amount of special excise duty paid by it under s. 80 of the Finance Act. The concerned authority granted tax credit certificate only in respect of the Central Excise Duty levied under the Excise Act , taking the view that the appellant was not entitled to have any tax credit in respect of any other excise duty levied under a different enactment, namely, s. 80 of the  Finance Act . The appellant challenged before <ORG> the aforesaid view of the authorities but <ORG> negatived the challenge principally on the ground that tax credit would not be available to the appellant company in respect of the special excise duty levied under s. 80 of the Finance Act having regard to the special meaning assigned to the expression 'duty of excise' by clause (b) of sub-s(6) of s. 280ZD . It is clear that under s. 280ZD (1) a manufacturer of the concerned goods is entitled to be granted a tax credit certificate for an amount calculated at the rate not exceeding 25% of "the amount of duty of excise payable by him" on that quantum of the goods cleared by him during the relevant financial year which exceeds the quantum of goods cleared by him during the base year and clause (b) of sub-s. (6) of s. 280ZD defines the expression 'duty of excise' for the purpose of the aforesaid provision in a special manner and clause (b) says 'duty of excise' means the duty of excise leviable under the Central excises and Sa<ORG> Act , 1944". Obviously the special excise duty which was levied under s. 80 of the Finance Act 1965 can not be regarded as having been levied under the Excise Act . Counsel for the appellant company, however, urged before us that having regard to the provisions of sub-clause (3) and (4) of s. 80 of the Finance Act the special excise duty leviable thereunder should be regarded as duty of excise leviable under the Excise Act . <ORG> is not possible to accept this contention. It is true that the expression 'leviable' is an expression of wide import and includes stages of qualification and recovery of the duty but in the context in which that expression has been used in clause (b) of sub-s. (6) of s. 280 ZD it is clear that it has been used in the sense of chargeability of the duty. In other words the duty of excise in respect whereof tax credit is available would be in respect of such duty of excise as chargeable under the Excise Act and clearly the special excise duty in respect whereof additional tax credit is sought by the appellant company is not chargeable under the Excise Act but chargeable under the Finance Act . Sub- clauses (3) & (4) of s. 80 of the Finance Act on which reliance has been placed by counsel for the appellant company in terms refer to the procedural aspect such as the qualification and collection of duty and simply because the qualification and collection of the special duty under the Finance Act is to be done in accordance with the provisions of the Excise Act such duty does not become leviable, that is to say, chargeable under the Excise Act . It is, therefore, not possible to accept the contention of the counsel that such special duty of excise leviable under the Finance Act should also be included or taken into account for the propose of granting tax credit certificate under the Scheme read with S. 280ZD of the Income Tax Act 1961. Reference was made by counsel for the appellant to a decision of <ORG> in <CITATION> .(l) where the view taken by that Court seems to support his contention but having regard to the special definition of the expression 'duty of excise' given in s. 280ZD (6) (b) and the construction which we have put on the word 'leviable, we do not approve the decision of <ORG>.

The other contention urged by counsel for the appellant relates to the question of limitation but on this aspect the admitted facts are that the first application for tax credit certificate was made by the appellant on June 24, 1966 and the same had been disposed of in December 1966. Thereafter a supplementary application was made on August 26, 1967 which was obviously barred by limitation as per para 5.2 of the Scheme. Further, even the power to condone delay conferred on <ORG> under para 5.3 would not cover the appellant's case for under that provision a delay for a period not exceeding 60 days could alone be condoned. Counsel, however, urged that the delay in filing the supplementary application ought to have been condoned having regard to the trade notice that had been issued on June 29, 1967 inasmuch as the supplementary application could be said to have been made because of the clarification issued under that trade notice. It is, however, clear that by the trade notice no amendment was effected but merely a clarification of the existing position in law was given and, therefore, the trade notice could not furnish starting point of limitation for the supplementary application.

In our view both the contentions were rightly rejected by <ORG> and the appeals are dismissed but without cost.

In view of what is stated above the special leave petitions are also dismissed.

N.V.K. Appeals & Petitions dismissed. (1) 114 ITR 636


CASE NO.: Appeal (civil) 5478 of 2004 PETITIONER: <ORG> RESPONDENT: <NAME> & Ors. DATE OF JUDGMENT: 25/08/2004 BENCH: <NAME>,<NAME> & <NAME> JUDGMENT:

J U D G M E N T (Arising out of S.L.P. ) No. 12019 of 2003) S.B. SINHA, J:

Leave granted.

<ORG> aggrieved by and dissatisfied with a judgment and order dated 28th March, 2002 passed by <ORG> at Hyderabad in AAO No. 216 of 1997 is in appeal before us.

The respondents herein are heirs and legal representatives of one <NAME>. The said <NAME> (the deceased) used to carry on business in vegetables. He purchased 5 bags of vegetables on 24.11.1991 in a village known as Ayyapareddipalem and loaded the same in a trailer of a tractor bearing No. MH33-8109. He was traveling therein. He wanted to buy some more vegetables at a village known as Peddapadu. While the tractor approached the said village, a bus was seen coming from opposite direction. Because of rash and negligent driving on the part of the driver of the said tractor, and which was driven at a very high speed, it went to the extreme left side of road margin and because of heavy jerks, the deceased fell down and received serious injuries. He was immediately shifted to Peddapadu where he breathed his last.

A claim petition was filed by the respondents herein before <ORG>, Nellore claiming a sum of Rs. 1,00,000/-. The Appellant herein denied and disputed its liability to pay any amount to the Respondents by way of compensation inter alia on the ground that the deceased was traveling in the said tractor as a 'paid passenger'.

The learned <ORG> inter alia held that carrying the goods, i.e., vegetables, by the deceased as owner thereof would entitle the Applicants to receive compensation from the Appellant.

The learned <ORG> observing that a person who is not a party to contract of insurance would be the 'third party' and in that view of the matter the respondents would be entitled to the amount of compensation even if the vehicle was only having third party insurance (Act policy). It was further held that the <ORG> was empowered to grant compensation over and above the amount claimed. A sum of Rs. 1,53,000/- was awarded by way of compensation in favour of the Respondents. <ORG> by reason of the impugned judgment has dismissed the appeal preferred by the Appellant herein from the said judgment and award holding that as the deceased was traveling in the trailer alongwith his goods being vegetables, it was liable to pay compensation.

Mr. <NAME>, learned counsel appearing on behalf of the appellant would submit that as this Court in <ORG> Vs. <NAME> and Others [(2003) 2 SCC 223] overruled its earlier decision in <ORG> Vs. <NAME> [(2000) 1 SCC 237] holding that the insurance company would not be liable for paying compensation to a passenger in a goods vehicle, whether he was travelling as an owner of the goods when that vehicle meets with an accident, the impugned judgment is not sustainable.

Mrs. <NAME>, learned counsel appearing on behalf of the respondents, on the other hand, would submit that a tractor is not a 'goods carriage' vehicle and as carrying of vegetables in a tractor would be for agricultural purpose, the appellant cannot be absolved from its liability to pay the amount of compensation.

Section 147(1) of the Motor Vehicles Act, 1988 is in pari materia with the provisions of Section 95(1) of the Motor Vehicles Act, 1939. In the year, 1994, Section 147 was amended by reason of Act 54 of 1994 with effect from 14.11.1994 in terms whereof the words "including owner of the goods or his authorized representative carried in the vehicle" were added after the words "against any liability which may be incurred by him in respect of the death of or bodily injury to any person".

In <NAME> (supra), this <ORG> overruling its earlier decision in <NAME> (supra) observed:

"9. In <NAME> case (supra) the Court assumed that the provisions of section 95(1) of Motor Vehicles Act, 1939 are identical with section 147(1) of the Motor Vehicles Act, 1988, as it stood prior to its amendment. But a careful scrutiny of the provisions would make it clear that prior to the amendment of 1994 it was not necessary for the insurer to insure against the owner of the goods or his authorised representative being carried in a goods vehicle. On an erroneous impression this Court came to the conclusion that the insurer would be liable to pay compensation in respect of the death or bodily injury caused to either the owner of the goods or his authorised representative when being carried in a goods vehicle the accident occurred."

One of us in a supplemental judgment in Asha Rani (supra) opined:

"25. Section 147 of 1988 Act, inter alia, prescribes compulsory coverage against the death of or bodily injury to any passenger of "public service vehicle". Proviso appended thereto categorically states that compulsory coverage in respect of drivers and conductors of public service vehicle and employees carried in a goods vehicle would be limited to the liability under the Workmen's Compensation Act . It does not speak of any passenger in a 'goods carriage'.

26. In view of the changes in the relevant provisions in the 1988 Act vis-a-vis the 1939 Act, we are of the opinion that the meaning of the words "any person" must also be attributed having regard to the context in which they have been used i.e. 'a third party'. Keeping in view the provisions of the 1988 Act, we are of the opinion that as the provisions thereof do not enjoin any statutory liability on the owner of a vehicle to get his vehicle insured for any passenger travelling in a goods vehicle, the insurers would not be liable therefor.

27. Furthermore, sub-clause (i) of clause (b) of sub-section (1) of section 147 speaks of liability which may be incurred by the owner of a vehicle in respect of death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place, whereas sub-clause (ii) thereof deals with liability which may be incurred by the owner of a vehicle against the death of or bodily injury to any passenger of a public service vehicle caused by or arising out of the use of the vehicle in a public place.

28. An owner of a passenger carrying vehicle must pay premium for covering the risks of the passengers. If a liability other than the limited liability provided for under the Act is to be en- hanced under an insurance policy, additional premium is required to be paid. But if the ratio of this <ORG>'s decision in <CITATION>  1 SCC 237 is taken to its logical conclusion, although for such passengers, the owner of a goods carriage need not take out an insurance policy, they would be deemed to have been covered under the policy wherefor even no premium is required to be paid.

29. We may consider the matter from another angle. Section 149(2) of the 1988 Act enables the insurers to raise defences against the claim of the claimants. In terms of clause (c) of sub-section (2) of section 149 of the Act one of the defences which is available to the insurer is that the vehicle in question has been used for a purpose not allowed by the permit under which the vehicle was used. Such a statutory defence available to the insurer would be obliterated in view of the decision of this Court in <NAME> case (supra)."

<NAME> (supra) was followed by this Court in <ORG> Vs. <NAME> and Others [(2003) 2 SCC 339] holding:

"10. The inevitable conclusion, therefore, is that provisions of the Act do not enjoin any statutory liability on the owner of a vehicle to get his vehicle insured for any passenger travelling in a goods carriage and the insurer would have no liability therefore."

Yet again in <ORG> Vs. <NAME> and <ORG>. [JT 2003 (7) SC 520] this Court held:

"11. The difference in the language of "goods vehicle" as appearing in the old Act and "goods carriage" in the Act is of significance. A bare reading of the provisions makes it clear that the legislative intent was to prohibit goods vehicle from carrying any passenger. This is clear from the expression "in addition to passenger" as contained in definition of "goods vehicle" in the old Act. The position becomes further clear because the expres- sion used is "goods carriage" is solely for the "carriage of goods". Carrying of passengers in a goods carriage is not contemplated in the Act. There is no provision similar to clause (ii) of the proviso appended to section 95 of the old Act prescribing requirement of insurance policy. Even section 147 of the Act mandates compulsory coverage against death of or bodily injury to any passenger of "public service vehicle". The proviso makes it further clear that compulsory coverage in respect of drivers and conductors of public service vehicle and employees carried in goods vehicle would be limited to liability under the Workmen's Compensation Act , 1923 (in short 'WC Act'). There is no reference to any passenger in "goods carriage"."

The effect of 1994 amendment came up for consideration before a 3- Judge Bench of this Court in <ORG> Vs. <NAME> and Others [(2004) 2 SCC 1] wherein again it was held:

"19. In Asha Rani (supra), it has been noticed that sub-clause (i) of clause (b) of sub-section (1) of Section 147 of the 1988 Act speaks of liability which may be incurred by the owner of a vehicle in respect of death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place. Furthermore, an owner of a passenger-carrying vehicle must pay premium for covering the risks of the passengers travelling in the vehicle. The premium in view of the 1994 Amendment would only cover a third party as also the owner of the goods or his authorised representative and not any passenger carried in a goods vehicle whether for hire or reward or otherwise.

20. It is therefore, manifest that in spite of the amendment of 1994, the effect of the provision contained in Section 147 with respect to persons other than the owner of the goods or his authorized representative remains the same. Although the owner of the goods or his authorized representative would now be covered by the policy of insurance in respect of a goods vehicle, it was not the intention of the legislature to provide for the liability of the insurer with respect to passengers, especially gratuitous passengers, who were neither contemplated at the time the contract of insurance was entered into, nor was any premium paid to the extent of the benefit of insurance to such category of people."

(Emphasis supplied) An insurance for an owner of the goods or his authorized representative travelling in a vehicle became compulsory only with effect from 14.11.1994, i.e., from the date of coming into force of Amending Act 54 of 1994.

Furthermore, a tractor is not even a goods carriage. The "goods carriage" has been defined in Section 2(14) to mean "any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods" whereas "tractor" has been defined in Section 2(44) to mean "a motor vehicle which is not itself constructed to carry any load (other than equipment used for the purpose of propulsion); but excludes a road-roller". The "trailer" has been defined in Section 2(46) to mean "any vehicle, other than a semi-trailer and a side-car, drawn or intended to be drawn by a motor vehicle".

A tractor fitted with a trailer may or may not answer the definition of goods carriage contained in Section 2(14) of the Motor Vehicles Act. The tractor was meant to be used for agricultural purposes. The trailer attached to the tractor, thus, necessarily is required to be used for agricultural purposes, unless registered otherwise. It may be, as has been contended by Mrs. <NAME>, that carriage of vegetables being agricultural produce would lead to an inference that the tractor was being used for agricultural purposes but the same by itself would not be construed to mean that the tractor and trailer can be used for carriage of goods by another person for his business activities. The deceased was a businessman. He used to deal in vegetables. After he purchased the vegetables, he was to transport the same to market for the purpose of sale thereof and not for any agricultural purpose. The tractor and trailer, therefore, were not being used for agricultural purposes. However, even if it be assumed that the trailer would answer the description of the "goods carriage" as contained in Section 2(14) of the Motor Vehicles Act, the case would be covered by the decisions of this Court in Asha Rani (supra) and other decisions following the same, as the accident had taken place on 24.11.1991, i.e., much prior to coming into force of 1994 amendment.

For the reasons aforementioned, the impugned judgments cannot be sustained which are set aside accordingly. This appeal is allowed. In the facts and circumstances of this case, there shall be no order as to costs.


<NAME>, <NAME>

1. This appeal by the assessee is directed against the order of the CIT(A) on following grounds :-

"That the CIT(A) erred on facts and in law in confirming the addition of Rs 1,68,71,980/- to the valuation of closing stock by not accepting the change in the method of valuation of closing of levy sugar to lower of cost or realizable value from lower of cost or average realizable value of levy and free sale sugar.

1.2 That the CIT(A) erred on facts and in law in observing inter alia that the very fact that the appellant changed the method of valuation again in AY 1993-94 shows that the change in the relevant AY 91-92 was not bona fide.

2.1 That the CIT(A) erred on facts and in law in not directing the exclusion of Rs 5,51,94,292/- from the income of the appellant.

2.2 That the CIT(A) erred on facts and in law in observing inter alia that 'the contract receipts were thus realized as per the terms of the contract agreement: and 'the bank guarantees which had been furnished for the removal of the defects, if any, were in the nature of the securities and the same did not effect the accrual of the contract receipts in favour of the appellant company.

3. That the CIT(A) erred on facts and in law in confirming the action of the <ORG> in allowing depreciation on expenditure of Rs. 5,65,005/- at the rate of 10% treating the same as part of furniture and fixtures as against the claim of the appellant for total write off of the expenditure either as current repair or as temporary structures eligible for 100% depreciation.

4. That the CIT(A) erred on facts and in law in confirming disallowance of expenditure of Rs 9,100/- on repairs at the residence of employees as non business expenditure.

5.1 That the CIT(A) erred on facts and in law in confirming the action of the AO in disallowing deduction for interest accrued but not due amounting to Rs. 21,15,615/- on sugar development fund loan.

5.2 That the CIT(A) erred on facts and in law in further holding that the amount of interest was even disallowable as per section 43(a) of the Act without appreciating that the amount of interest was not due for payment.

5.3 Without prejudice that the CIT(A) erred on facts and in law in not holding that the disallowance, if at all, should have been restricted to Rs. 9,00,000/- only being the interest pertaining to the year.

6.1 That the CIT(A) erred on facts and in law in confirming the action of the AO in disallowing interest amounting to Rs. 15,54,540/- on excess levy sugar price.

6.2 That the CIT(A) erred on facts and in law in observing, inter-alia, that the liability towards the interest cannot be said to have been crystallised.

7.1 That the CIT(A) erred on facts and in law in disallowing deduction for provision of bad and doubtful debts amounting to Rs 25 lakhs.

7.2 That the CIT(A) erred on facts and in law in observing inter-alia that 'the quantification of bad debt provision of Rs. 25 lakh is also without any basis and is admittedly a liability which may arise in future.

8. That the CIT(A) erred on facts and in law in not allowing full relief requested for in respect of entertainment expenditure which disallowance was returned at Rs. 12,76,373/- but disallowed by the <ORG> at Rs. 14,80,175/-."

2. Ground no.1 relates to an addition of Rs. 1,68,71,980 to the valuation of closing stock. The facts in brief borne out from the record are that the assessee under account, the assessee has changed the method of valuation of closing stock. The assessee has put a note Schedule 25 of the balance sheet stating therein that the company has changed the method of valuation of closing stock of sugar. This has been valued independently at low cost or realizable value of levy price instead of averaging it with the free sugar sales price. The <ORG> observed from this changed method of valuation that had the company continued to value levy sugar stock on the basis followed in earlier years, the value of stock of finished goods and net profit would have been higher by Rs. 168.72 lakh. He further observed from the Director's report that this year has been a record year for the company in terms of growth in turnover and profits. The gross turnover has increased by 47% over last year and net profit after tax by 106%. He further observed that his change has been made according to the Director's report to bring the method of valuation of sugar stock in line with the accepted practice in the sugar industry. The assessee was asked to explain as to why this change should be accepted and through its written submissions, it was stated on behalf of the assessee that the change in the method of valuation is in accordance with the guidelines of <ORG> that the inventories should be valued at lower historical cost and net realizable value. It was further explained before the <ORG> that in the past levy and free sale sugar have been treated as one item which was not correct either on facts or on law in so far as levy sugar is totally a different item to free sale sugar as recognized not only by the bankers of the assessee company but also by the Excise authorities and separate records had to be kept of two types of sugar. he accordingly, valued these two types of sugar independently. In support of his contention, the assessee has relied upon some case laws. The <ORG> has noted that upto AY 90-91 the assessee had been continuously following a particular method for valuing the closing stock of sugar but suddenly in AY 91-92, in changed the method of valuing the closing stock of sugar and third method was followed only upto the next year i.e. 92-93 and in the AY 93-94, the assessee again reverted back to his old method. The <ORG> has observed that the assessee had changed its method of valuing the closing stock with the intent to avoid incidence of tax resorted by record growth in turnover and in profits. The <ORG> further examined the auditor's report and the method of accounting and formed a view that whenever it suited the assessee to avoid the incidence of tax, the method of valuation of closing stock has been adopted according to assessee's convenience. Since the change is not bona fide, it cannot be allowed. He, accordingly, worked out the profit by adopting the old method of valuation of closing stock which resulted into higher profit by Rs. 1,68,71,980.

3. An appeal was preferred before the CIT(A) with the submission that the change in the method of valuation of stock in the subsequent assessment year 93-94 was, in fact, not bona fide, being irrational and unscientific against accepted accounting procedures and resulting in unrealized profits being brought into account and should be rejected and the method of valuation in the relevant assessment year 1990-91 is more rational and scientific and should be accepted. He further pleaded that the assessee would have no objection if the same method adopted in the year under appeal is consistently adopted in tax assessments in all subsequent assessment years. The CIT(A) re-examined the issue in the light of various case laws referred to before him and confirmed the addition after making the following observations:-

"I have carefully considered the submissions of the appellant, the observations made in the assessment order as well as the facts of the case. Till AY-91-91, the appellant valued the levy sugar and the free-sale sugar as a single item on the basis of the lower of the cost or the average realizable value of free and levy sugar which method was given up only in the AY 91-92 and 92-93 after which the appellant again switched back to the old method of valuation adopted upto AY 90-91. The contention of the appellant that the changed method of valuation should be applied to the subsequent years from AY 93-94 onwards does not help the appellant's case as the very fact that the appellant changed the method of valuation again in AY 93-94 shows that the change in the relevant AY 91-92 was not bona fide. In any case the subsequent events show that the method adopted in the year under appeal has not been followed consistently in future. The details in paras 5 and 8 of the assessment order also indicate that the appellant reduced its incidence of tax through the change in the method o valuation. It was held in the case of <ORG> Vs Food Specialties, 206 ITR 119 that such change was permissible when it was bona fide and not for the purpose of evading tax. I also agree with the <ORG> that the appellant's reliance on the judgments in the cases of <ORG> and <ORG> is misplaced as method adopted by the appellant is not bona fide or restricted for a particular year and not regularly followed in the subsequent years. It was held by <ORG> in the case of <ORG> Vs. CIT 207 ITR 901 that there could be no splitting up of the stock of sugar and its valuation at different rates. In view of these observations as well as the judgments quoted by the <ORG> in Para 10 of her order the contentions of the appellant are rejected and the addition of Rs. 1,68,71,980/- is upheld."

4. Aggrieved, the assessee has preferred an appeal before the <ORG> and besides reiterting its earlier contentions, it contended before us that the assessee was to sell its production of sugar at levy price and market price at a rate determined by the <ORG> from time to time. During the previous year, the assessee changed its method of valuation of closing stock treating levy of sugar as a separate product as the assessee was advised that such method of closing stock is more rational and scientific. Since the levy sugar and free sale sugar are treated as separate item for the purpose of levy of excise duty and by the bankers for the purpose of providing finance, the method of valuation of stock of levy sugar and free sale sugar on the same basis was not in order. He further submitted that the change in method of closing stock in the previous year relevant to the AY 93-94 and the method being followed by the assessee in the past does not impinge on the bona fides of the change made in the previous year relevant to the AY 91-92 which is more rational scientific and acceptable method of valuation. It was further contended on behalf of the assessee that the subsequent change in the method of valuation during the previous year relevant to the AY 93-94 may call for being rejected but that change cannot result in the present change being rejected. In support of his contention, he has relied upon the following judgements :-

1. CIT Vs. <ORG> 149 ITR 759

2. CIT Vs. <ORG> 145 ITR 457

3. CIT Vs. <ORG> 173 ITR 347 (AP)

4. CIT Vs. <NAME> 123 Taxman 660

5. <ORG> Vs. CIT 114 ITR 227

5. The Id. DR on the other hand, besides relying upon the order of the CIT(A) has emphatically argued that the assessee had been consistently following an average method of valuing the stock of sugar upto the AY 90-91 and the same was duly accepted by the <ORG>. When it was noticed by the assessee that this year is the record year for the company in terms of growth in turnover and profits and the gross turnover has increased by 47% and net profit after tax by 106%, the assessee changed the method of valuation of closing stock of sugar to avoid incidence of tax. This change in method was valued upto the AY 92-93 and again in AY 93-94 the assessee reverted back to its old method of valuation of closing stock of sugar. The acts and deeds of the assessee clearly indicate that the change in valuation of closing stock was done by the assessee at its own convenience. The facts of the case categorically lead to a conclusive opinion that change in method of valuation of closing stock is not bona fide but with intent to avoid incidence of tax. As such, in cannot be allowed, <ORG> further contended that the contention of the assessee that the method of valuation adopted in the impugned assessment year should be accepted and followed continuously in future and further change in method of valuation adopted in the AY 93-94 should be outrightly rejected. The Id. DR further submitted that it has been repeatedly held that the assessee has a right to change its method of accounting or valuation of closing stock but it should be bona fide and continuously followed in succeeding years. But in the instant case, the method of valuation of closing was changed only during the AY 91-92 and 92-93 with the intent to reduce the incidence of tax and thereafter, the assessee again reverted back to its old method of valuation. In these circumstance, it cannot be said that change in method of valuation is bona fide. In support of his contention, he relied upon the following judgements :-

<ORG> Vs. CIT 244 ITR 21 <ORG> Vs. CIT 207 ITR 901 <ORG> 44 ITR 22 <ORG> Vs. CIT 141 ITR 861 CIT Vs. <ORG> 253 ITR 137

6. On consideration of river submissions and from a careful perusal of record, we find that admittedly, the assessee had been following the average method of valuation of closing stock of sugar since beginning till AY 90-91 and the same method of valuation was duly accepted by the <ORG>. It is also an admitted fact that the previous year relevant to the assessment year in question is a record year for the company in terms of growth in turnover and profits and by adopting this changed method of valuation of closing stock, the profit of the assessee company has been substantially reduced. When profit of the assessee company has been substantially reduced by making change in the valuation of closing stock, it has become all the more necessary for the revenue authorities to look into the real intention of the assessee for making a change in the method of valuation of closing stock. In the instant case, on detailed inquiry it was noticed by the <ORG> that this changed method of valuation was adopted by the assessee only in two assessment years i.e. 91-92 and 92-93. Again in AY 93-94, the assessee itself has reverted back to its old method of valuation of closing stock. The frequent change in method of valuation of closing stock warrants the necessary inquiry about the intention of the assessee for doing these changes in valuation of closing stock and admittedly, it as rightly observed by the <ORG> that had the method of valuation of closing stock of sugar not been changed, the assessee's profit would have increased by Rs. 1,68,71,980. Nothing is placed on record on behalf of the assessee to falsify these observations of the <ORG>.

7. We have also carefully examined various judgments referred to by the parties and on its careful perusal, legal position has become more clear that the assessee has a right to make a change in the method of accounting including valuation of closing stock but this must be bona fide and be followed regularly in succeeding years. The assessee is not permitted to make the changes in the method of accounting or valuation of stock so frequently at his convenience to defraud the revenue. In the case of <ORG> Vs. <ORG> (supra) their lordships of the Kerala High court have categorically held that the change must be bona fide and changed method must be followed regularly. Change to mercantile system and change again to cash system in following year cannot be held to be a bona fide change because it was not followed regularly, During the course of hearing, the Id. Counsel for the assessee could not satisfactorily explain as to why he has reverted back to its old method of valuation in AY 93-94 and for what reasons now the assessee is submitting that the method adopted during the AY 91-92 and 92-93 must be followed in succeeding years after rejecting the method of valuation adopted by the assessee for valuing its stock for the AY 93-94. Our attention was invited to a judgment of <ORG> in the case of <ORG> Vs <ORG> of which facts are quite identical to the present case.

8. In that case, the assessee was a limited company manufacturing sugar and in past closing stock of sugar was being valued at the market rate. In the previous year relevant to the AY 91-92, the assessee valued the closing stock by bifurcating the closing stock into levy sugar and free sugar. The assessee, accordingly, valued its closing stock of levy sugar at Rs. 167/- per bag and free sugar at Rs. 177.90 per bag i.e. the cost price. The AO did not accept the changed method of valuation and this order of the AO was upheld upto the <ORG> and when the matter traveled to <ORG>, the Hon'ble lordships of <ORG> have held that all along in the past, the assessee was following its closing stock at market rate. It was only in the year under reference that the assessee found that if it valued the closing stock by bifurcating the stock into levy sugar and free sugar, it would be able to reduce its tax burden. Since the assessee could not produce any material on record to show the circumstances under which the assessee was obliged to bifurcate the closing stock in the manner it did, the <ORG> was justified in taking the view that there could be no bifurcation of stock of sugar and different valued could not be adopted by them. The facts of the present case are almost identical. Besides one additional factor does exist in the instant case is that in succeeding year i.e. AY 93-94, the assessee reverted back to its old method of valuation. Since nothing has been placed on record to prove that the change in method of valuation during the impugned assessment year is bona fide except the oral submission that this changed method is more scientific and rational, we have no hesitation in holding that the change in method of valuation is not bona fide and is not regularly followed. We therefore, do not find any infirmity in the order of the CIT(A). Accordingly, we confirm his order.

9. Ground no. 2 is not pressed. As such, we reject the same being not pressed.

10. Ground no. 3 relates to the depreciation on expenditure of Rs. 5,65,005.

11. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. The facts in nutshell borne out from the record are that the AO has observed from the tax audit report that Rs. 11,83,210 was shown as capital revenue expenditure. Out of this, assessee claimed 100% depreciation at Rs. 8,37,373 being the cost of temporary erection. The AO examined the nature of expenditure in detail in his order in para no. 11 to 14 and observed that an expenditure of Rs. 2,37,675 is expenditure on purely temporary erection such as wooden structure on which 100% depreciation is allowable. The remaining expenditure of Rs. 5,65,005 Rs. 1,81,222 + 11,700 +3,24,783 + Td/ 24000+23,300 was incurred on aluminium partition, furniture and fixtures. Since it was not a temporary erection, the AO allowed 10% depreciation thereon. Aggrieved the assessee preferred an appeal before the CIT(A) with the submission that the aluminium material is very convenient to install and its cost compares favourably with wooden items of similar quality. In support of his contention, he has relied upon the case of <ORG> with the submission that it is essential to consider the nature of advantage in a commercial sense to know whether a particular expenditure is capital or revenue. The CIT(A) re-examined the issue in detail and after having examined the relevant provisions of the IT Rules, he confirmed the findings of the AO after holding that the anodized aluminium structures and doors and wall panellings cannot be termed as temporary erection.

12. Aggrieved, the assessee preferred an appeal before the <ORG> with the submission that entry I(4) of Appendix I of the IT Rules while talking of purely temporary erection such as wooden structures refers to wooden structures merely by way of an example. As such, the aluminium partition, anodized aluminium structures should fall within the same category of temporary structure eligible for 100% depreciation. The Id. Counsel for the assessee further submits in the alternative that the entire expenditure on fixing of partition should be held to be in the nature of current repairs eligible for deduction while computing business income. In support of his contention, he placed reliance upon the following judgments :-

<ORG> Vs CIT 124 ITR 1(SC) CIT Vs <ORG> 172 ITR 257 (SC) CIT Vs <ORG> 214 ITR 523 <ORG> Vs. CIT 149 ITR 52 (Del) ITO Vs. <ORG> 19 ITD 342 <ORG> Vs ITo 43 ITD(tm) 21 (Delhi) <ORG> Vs. ITO 38 ITD 428 J.K. Synthetics Vs ITO 32 ITD 775 (Delhi)

13. <NAME>, on the other hand, has submitted that by claiming depreciation at 100% of these aluminium partitions and structures by treating it to be a temporary erection, the assessee itself has treated this expenditure as a capital expenditure and the same stand was taken by the assessee even upto the first appellate authority. Now, he cannot take a different stand by saying that these expenditures are in the nature of current repairs eligible for deduction while computing the business income. <NAME> further contended that now the question before the <ORG> is whether modized aluminium structure and aluminium partition and doors and wall tunneling can be termed as a temporary erection on which 100% depreciation is allowable. To determine that nature of erection, one has to look into the nature of material used in erection. In the instant case, expenditures were incurred on anodized aluminium structures, aluminium partition, aluminium doors and wall panellings with has longer life than the wooden structure. The id. DR has also invited our attention to Rule 1 and 2 of Appendix I with the submission that wooden structures are generally called to be purely temporary erection because of its life span. Again, in sub-rule 2 under the head furniture and fitting, the depreciation is allowable at 10%. The Id. <NAME> further submitted that whatever the case law was referred by the assessee, they talk about the revenue and capital expenditure whereas in the instant case, the dispute is with regard to the nature of capital expenditure whether it is a temporary erection of falls under the head furniture and fitting.

14. Having considered the rival submissions and from a careful perusal of record, we find that the assessee has not claimed these expenditures as revenue expenditures in its book of accounts. In the tax audit report, assessee claimed it to be a temporary erection and claimed depreciation at 10%. Similar claim was raised before the CIT(A). But during the course of hearing, the assessee has raised a new claim that these expenditures should be treated as revenue expenditure and deduction of the same should be allowed while computing business income of the assessee. Since this issue requires proper verification whether the property was owned by the assessee or the expenditures are incurred in order to acquire enduring benefit, it cannot be entertained at this belated stage. We therefore, confine ourselves to the moot question whether the expenditures were incurred to raise a temporary erection entitling the assessee to depreciation at 100%. We have also carefully examined the judgement referred to by the parties but all these judgments are on the point of nature of expenditures whether it is capital or revenue. In Rule 1 of Appendix 1 of the Income Tax Rules, depreciation at 100% was allowed on temporary erection. Under the head temporary erection, the legislature has given an example of wooden structure. By giving an example of wooden structure, the legislature makes it clear that if the life span of an erection is short, it should be called a temporary erection, otherwise it may fall under the head part of building or furniture and fittings on which depreciation at 10% is allowable. In the instant case, the assessee has incurred certain expenditure on wooden partition, on which depreciation was allowed at 100% but on aluminium erection, the <ORG> has allowed depreciation at 10% only for the reason that life span of aluminium structure is more that the wooden partition. The adopted by the <ORG> to determine the nature of erection does not appear to us to be unjustified or unreasonable. We, therefore, do not find any infirmity in the order of the CIT(A). Accordingly, we confirms his order on this court.

15. Ground no.4 relates to the disallowance of expenditure of Rs. 9100 on repairs at the residence of the employees as non-business expenditure.

Having considered the rival submissions and from a perusal of record, that the assessee has claimed an expenditure incurred on fixing side units at the residence of the Vice President of the company as per bill dated 20.10.90 of <ORG> as business expenditure but the AO had disallowed the same on the ground that this expenditure was incurred for non-business purposes. the assessee preferred an appeal before the CIT(A) but did not find favour with him. Now, it has carried the matter before the <ORG> with the submission that this expenditure was incurred at the of residence of the Vice President of the company. As such, it should be allowed as business expenditure.

16. During the course of hearing, a specific query was raised from the Id. Counsel for the assessee whether the residence was provided by the company to its Vice President as per the terms of appointment. If yes, whether it was the responsibility of the company provide furniture and fixtures in that residence and also to make maintenance of the house as per the terms of employment. Nothing was produced during the course of hearing on behalf of the assessee. Since the assessee failed to prove that the expenditures were incurred in terms of employment or in the regular course of business, we do not find any force in the claim of the assessee. We therefore, dismiss this ground of the assessee and uphold the order of the CIT(A).

17. Ground no. 5 relates to the disallowance of deduction of interest accrued but not due amounting to Rs. 21,15,615 on Sugar Development fund Loan taken but it was not allowed by the <ORG> on the ground that according to letter dated 16.7.93 addressed to the assessee company by <ORG>, the repayment of SDF loan together with interest thereon is to be payable in five years instalments commencing from one year after the repayment of loans and interest thereon availed of from the specified financial institution in the modernization scheme or after 8 year period from the date of issue of cheque from the Govt. of India to <ORG> whichever is earlier. Accordingly, the <ORG> held that the interest accrued only on 18.11.96, as such it cannot be allowed in the relevant assessment year. The assessee preferred an appeal before the CIT(A) with the submission that as per the terms of loan agreement, the interest accrued from day to day though the same is to be repaid in instalments commencing from 1996. Since the assessee had been following the mercantile system of accounting he has claimed the payment of interest on accrual basis. he further placed reliance on Section 36(1)(iii) and 43(2) of the IT Act and emphasized that provisions of Section 43B(d) are not attracted at all. The CIT(A) re-examined the issue in the light of relevant provisions of the I.T. Act and held that Section 43B begins with the word "Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act....." which means that reference to sections 36(1)(iii) and 43(2) by the assessee is irrelevant. He further held that Section 43B(d) clearly applies to the case of the assessee and according to this Section if interest is not paid, it cannot be allowed. Since as per the loan agreement the liability to pay interest would accrue only on 18.11.96, the <ORG> has rightly disallowed the interest claimed by the assesee.

18. Now, the assessee has preferred an appeal before the <ORG> with the submission that Section 36(1)(iii) of the Act allows deduction for interest paid in respect of capital borrowed for the purpose of business or profession and as per Section 43(2) , the word 'paid' means the actually paid or incurred according to the method of accounting on the basis of which profits or gains are computed under the head profits and gains of business and profession. Having regard to this definition of paid in Section 43(2) of the Act, deduction has to be allowed in respect of interest accrued even though not due whether the mercantile basis of accounting is followed by the assessee. he further contended that provisions of Section 43B(d) of the Act are not attracted since the interest is payable to the <ORG> which operates and controls <ORG> and not to any financial institution.

19<ORG> Ld<ORG> DR on the other hand, has submitted that the <ORG><ORG> always operates through its financing agencies and Section 43B sub-section (d) deals with the payment of interest on any loan or borrowings from any public financial institution or state financial institution or <ORG><ORG> As such, the payment of interest to <ORG> cannot be called to be a direct payment to the <ORG> of India for taking the case out of the purview of Section 43B of the Act<ORG> He further submitted that Section 43B is a non-obstantie clause starting with "notwithstanding anything contained in the provisions of this Act"<ORG> It means it has an overriding effect on other provisions of this Act and according to it deductions are otherwise allowable under this Act in respect of different payments given in sub-section a to of on payment basis<ORG> The Ld<ORG> DR further submits that since as per the agreement repayment of interest accrued thereon starts w<ORG>e<ORG>f<ORG> 18<ORG>11<ORG>98 the interest alone cannot be claimed to have been accrued during the impugned assessment year<ORG>

20. On consideration of rival submissions and from a careful perusal of referred, we find that admittedly, repayment starts w.e.f. 18.11.96 in 5 yearly installments as per the schedule along with interest accrued thereon. The agency involved in granting the loan is <ORG> which itself is a public sector and financing agency though the loan was sanctioned through a govt. letter but that letter does not take away nature of advancement of loan from the purview of Section 43B of the Act because the loan agreement was executed between the assessee and <ORG>. We have also carefully perused the relevant provisions of Section 36(1)(iii) and 43(2) of the Act and we find that payment of interest on borrowed capital is an allowable deduction but in the light of provisions of Section 43B payment of interest and the loan instalment to <ORG> is allowable only in those years in which such sum is actually paid. We have carefully examined the facts of the case in the light of legal provisions and we find that the assessee is only entitled to claim the payment of interest when it becomes due and not prior to that. In this background, we do not find any infirmity in the order of the CIT(A). Accordingly, we confirm his order .We have also examined the alternative plea of the assessee that the disallowance should be restricted to Rs. 9 lakh only being an interest pertinent to the year but we do not find any force in the alternative plea because even this year, the repayment of lon with interest was not due and the assessee cannot raise a claim of payment of interest on accrual basis. We, therefore, uphold the finding of CIT(A) on this issue.

21. Ground no.6 relates to the disallowance of interest amounting to Rs. 15,54,540 on excess levy sugar price.

22. From a careful perusal of record on this issue, we find that the assessee has claimed in its revised computation filed during the course of assessment proceeding that a sum of Rs. 15,54,540 be allowed as interest payable on excess price of levy sugar price realized on the ground that the writ petition filed by the assessee in <ORG> challenging the fixation of levy price was dismissed and the assessee was asked to pay half of the amount in monthly instalments by <ORG> on a stay petition of the assessee while staying the outstanding demand. The assessee further contended before the AO that the interest liability of the year i.e. Rs. 15,54,540 has been claimed as a liability of the year in the revised computation even though no entires in the books of accounts were made by the assessee. In support of his claim, it placed reliance upon the judgment of <ORG> in the case of <ORG> Vs. CIT 82 ITR 363. The AO examined the claim of the assessee in the light of various judgments quoted before him and finally held that since the liability is not ascertained and determined in the year, it cannot be allowed as revenue expenditure. Accordingly, he rejected the claim of the assessee. The assessee preferred an appeal before <ORG> with the submission that as per <ORG> directions, the assessee was required to pay half of the amount which became due in 4 monthly installments with interest of 12.5% from the date of the order and for the balance amount, the assessee had to furnish a bank guarantee inclusive of interest on 12.5%. Since the assessee has complied with the directions of <ORG>, it raised a claim and its liability of payment cannot be treated as a contingent liability. The claim of the assessee was re-examined by <ORG> in the light of various judgements but he was not convinced with the explanation of the assessee and confirmed the disallowance after making the following observations :-

"I have carefully considered the observations of the <ORG> as well as submissions of the appellant. Since <ORG> while granting Leave Petition has ordered that interest @12.5% is to be only on the instalments payable in four months (which is half of the amount due) from the date of the order, the liability, if any, not only of the principal amount but also of the interest would depend on the final order and as such the claim of the appellant cannot be treated other than contingent. Since <ORG> has not passed any order in respect of interest from the date of collection upto the date of the order, when the point under reference is sub judice, the liability towards the interest cannot be said to have been crystalised. The <ORG> has rightly distinguished the facts of this case from other case laws quoted by the appellant in paras 25 and 26 of her order. A perusal of the "Levy sugar Price Equalisation Fund Act" also shows that this Act states that the liability of interest arises only when there is final disposal of the proceedings of the court which in this case now is <ORG>. The disallowance of interest liability is, therefore, upheld."

23. Now, the assessee has carried the matter before the <ORG> and reiterated his contentions. The Is. Counsel for the assessee further submitted that <ORG> had granted partial stay of recovery of the interest on the excess price realized and the same has become payable consequent to the dismissal of the writ petition by the Allahabad High court and as such, this liability cannot be treated as a contingent liability any more. He further submitted that the liability in respect of interest discrystallize in view of the decision of the Allahabad High court dismissing the assessee's writ petition and was not contingent upon final order of <ORG>. He further placed reliance upon the orders of the <ORG> in the case of <ORG> Vs Inspecting Assistant Commissioner 18 ITD 120 and D. Rajeshkumar & o, Vs ITO 20 ITD 89.

24. Ld. DR, on the other hand, has emphatically argued that the liability claimed by the assessee is not a statutory liability which can be claimed on its accrual. It is a contractual liability and whenever the contractual liability is disputed, it can only be claimed on its crystallization and quantification. In the instant case the <ORG> order was not accepted by the assessee and he preferred an appeal before the Hon'ble Supreme court and <ORG> has stayed the demand with certain conditions. since the Supreme court is seized with the matter, the judgment of the Hon'ble High court cannot be called to be a final verdict on the dispute, on the basis of which liabilit7y can be crystallized and quantified. Since the impugned liability has not been crystallized and determined in the year in question, the assessee's claim of payment against the liability cannot be allowed.

25. In support of his contention, Id, DR has relied upon the following judgments :

<ORG> 82 ITR 363 <ORG> Vs CIT 225 ITR 802

26. Having considered the rival submissions and from a careful perusal of the record, we find that the impugned liability is admittedly a contractual liability and it can only be claimed on its accrual. Once the contractual liability is disputed, it can only be claimed on its crystallization or quantification. In the instant case, the present liability i.e. excess levy sugar price was disputed by the assessee by filing the writ petition before <ORG> and it was into claimed during its pendency before <ORG>. <ORG> dismissed the writ petition but the verdict of <ORG> was challenged by the assessee before <ORG> and the apex court was pleased to grant a partial stay subject to certain conditions which were complied with by the assessee. Since the assessee has challenged the verdict of <ORG> and the Supreme court has not finally adjudicated the dispute, the liability cannot be called to have been crsytallized by the judgment of <ORG>. Had the assessee accepted the verdict of <ORG> and opted not to prefer an appeal before <ORG>, the liability would have been crystallized but when the assessee has chosen to prefer an appeal before <ORG> the liability cannot be called to have been crystallized and determined on the basis of the verdict of <ORG>, since the liability being a contractual liability, is not crystallized in the year under account, it cannot be claimed have been accrued. We, therefore, do not find any infirmity in the order of the CIT(A). Accordingly, we confirm the same.

27. Ground no.7 is into pressed by the Id. Counsel for the assessee. We therefore dismiss the same.

28. Ground no.8 relates to the disallowance of entertainment expenditure. Having considered the rival submissions and from a careful perusal of record, we find that the AO has estimated the disallowance u/s 37(2 A) of the Act at Rs. 14,80,175 against Rs. 12,76,373 surrendered by the assessee. Before the CIT(A), assessee claimed that 35% of the expenses are attributable to the employee's participation whereas the AO estimated it at 10%. The assessee has placed reliance upon the judgement of Delhi High Court in <ORG> reported at 119 ITR in support of his contention that following the aforesaid judgment the CIT(A) has directed the AO to exclude 35% of such expenditure on account of employees participation from the purview of Section 37(2A) . The CIT(A) has also directed the AO to allow Rs. 2500 as deduction pertaining to <ORG> which is a fixed sum and paid as charges for the card for this club and in the nature of annual fee.

29. Aggrieved, the assessee has preferred an appeal before the <ORG> with the submission that the entire expenditure should have been allowed because the seminars were conducted for the assessee's employees only, therefore, it cannot be treated as entertainment expenses for the purpose of Section 37(2A) of the Act. In support of his contention, he relied upon the following judgements:-

<ORG> Vs CIT 238 ITR 354 CIT Vs <ORG> 225 ITR 118 CIT Vs. <ORG> 92 Taxman 86

30. The <ORG>, on the other hand, has submitted that in tax audit report a sum of Rs. 12,76,373 was shown as entertainment expenses and the assessee itself has claimed the expenditure at 35% of the employees participation. In the light of categorical statement of the assessee, 100% expenditure cannot be treated as incurred on seminars conducted for the assessee's employees only.

31. On careful perusal of the record in the light of rival submissions, we find that the assessee itself has claimed 35% participation of its employees in all these seminars. On a careful perusal of the break-up of the expenses and material available on record, we find that the CIT(A) has already given proper directions to the AO to allow 35% of such expenditure on account of employee's participation. Since the CIT(A) has properly adjudicated the impugned issue and we do not find any infirmity therein, we use Id his order.

32. In the result, the appeal of the assessee is dismissed.