JUDGMENT
R. Jayasimha Babu, J.
1. The Revenue, aggrieved by the order of the Tribunal, has caused the following question to be referred to us arising out of the respondent’s assessment of the income for the assessment year 1980-81.
2. The respondent-Anna Transport Corporation–is an undertaking wholly owned by the Government of Tamil Nadu. It took over 49 buses from the erstwhile Tamil Nadu Transport Department at book value of Rs.22,73,513, against which, it paid a sum of Rs. 2,52,720 leaving a balance of Rs. 20,20,793. That was in the year 1975. The company made an abortive attempt to persuade the Government to set off this amount against the value of shares, which the company was willing to issue to the Government. That attempt not having succeeded, five years later, on March 27, 1980, the Government directed that the amount outstanding be treated as a loan carrying interest at the rate of 18 per cent. The Government also required the Corporation to pay the interest before March 31, 1980. The Corporation, therefore, paid to the Government a sum in excess of Rs. 14,76,411. The Income-tax Officer disallowed the sum of Rs, 14,76,411 on the ground that the assessee was following the mercantile system of account and ought to have provided for the interest liability in the earlier years.
3. The Commissioner as also the Tribunal have held that the liability to pay this interest for the earlier years arose only in the relevant year and, therefore, the payment made in that year qualifies as a proper deduction from out of the gross income of the assessee for that year. We do not find any error in the view so taken by the Tribunal.
4. Even when an assessee is following the mercantile system of account, it cannot possibly make a provision in its accounts, unless the liability had accrued. When the assessee is not in a position to determine the existence of liability, let alone the quantification thereof, the assessee cannot be penalised for not making a provision in the earlier years. The fact that the Corporation was liable to pay the sum of Rs. 20,20,793 to the Government, does not imply that the Corporation should have provided for an imaginary rate of interest on that sum, even when the Corporation had been making efforts to convince the Government to adjust that sum against the value of the shares in the capital of the company, which shares the company was willing to issue to the Government. Had the Government agreed to that proposal, no occasion would have arisen for payment of interest. It is only when the Government, five years later, decided that the amount should be treated only as a loan and as a loan bearing interest at the rate of 18 per cent., that the Corporation was made aware of its liability, and after providing for the same, it had also effected payment. The Tribunal was, in the circumstances, right in holding that the payment so made qualifies as a revenue expenditure of that year,
5. We, therefore, answer the question referred to us in the affirmative, in favour of the assessee and against the Revenue. The assessee shall be entitled to costs in a sum of Rs. 750.