JUDGMENT
A. Pasayat, J.
1. On being moved by Messrs. Indian Timber Corporation (hereinafter referred to as the “assessee”) under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), this court directed the Income-tax Appellate Tribunal, Cuttack Bench (in short, the “Tribunal”), to state a case and refer the following question for opinion :
“Whether the liability as claimed by the assessee is deductible as accrued liability under the Act for computing net income ?”
2. Pursuant to the direction, the Tribunal has stated a case and referred the aforesaid question for opinion. The background facts necessary for adjudication of the question referred are as follows :
The assessee, a partnership firm, filed its returns for the assessment year 1983-84 relating to the accounting period ending on September 30, 1982. A sum of Rs. 1,20,000 was claimed as deduction under the heading “Forest compensation”. The said amount was shown as an outstanding liability in the balance-sheet. On being asked to justify the claim, the assessee replied that, on the basis of interim reports received by the assessee from the forest authorities, the provision for “forest compensation” payable was made. It was accepted that no quantification had been made in terms of Rule 17 of the Orissa Forest Contract Rules, 1966 (hereinafter referred to as the “Rules”). It was urged that the liability as prescribed in the said rules is a statutory one and the same had accrued during the year under assessment. The Assessing Officer was of the view that there having been no quantification and the assessee having disputed the quantification, there was no scope for allowing the expenditure as claimed. The assessment of damage was made only on September 21, 1983, i.e., much beyond the close of the accounting year. Accordingly, the claim was disallowed. In appeal, the Commissioner of Income-tax (Appeals), Orissa, accepted the plea of the assessee and directed deletion of the addition made by the Assessing Officer. He, however, directed allowance of Rs. 1,23,040 which was the quantified damage though the Assessing Officer had made addition of Rs. 1,20,000. The Revenue carried the matter in appeal before the Tribunal. After considering the rival stands, the Tribunal was of the view that the claim made by the assessee was imaginary. There was no determined liability. Before the Tribunal, the assessee accepted that there was no scheduled rate prescribed for compensation. It was also noticed that the reports served upon the assessee partly related to the assessment year 1982-83 and partly to the assessment year 1983-84. It was further noticed by the Tribunal that the quantification was challenged before the appellate authority, i.e., the Conservator of Forests, and, therefore, the liability not having crystallised in a definite figure, the view of the Assessing Officer was correct. The assessee filed an application under Section 256(1) of the Act which was rejected by the Tribunal on the ground that the order did not give rise to a referable question of law. Thereafter, on being moved, this court directed the Tribunal to state a case as indicated above.
3. Learned counsel for the assessee has urged that the liability was a statutory one and merely because there was no quantification, it cannot be said that the liability did not accrue during the year in question. It was urged that the liability was an accrued one and a mere difficulty in the estimation thereof did not convert the accrued liability into a conditional one. Learned counsel for the Revenue has, however, submitted that the liability was a contingent and unascertained one and related to two years. The quantification of damages was assailed before the appellate authority prescribed under the statute and, therefore, the Tribunal was justified in its view.
4. For the resolution of the dispute, it is necessary to refer to Rule 17 of the Rules. It reads as follows :
“17. Liability of forest contractors for damages. -A forest contractor shall be responsible for any damage that may be done in a Government forest by himself or his servants and agents. The compensation for such damage shall be assessed by the Divisional Forest Officer, whose decision shall be deemed to be that of an arbitrator and shall be final and binding on the parties, except to the extent that it shall be subject to an appeal to the Conservator of Forests.”
5. A bare reading of the provision makes it clear that the compensation is to be assessed by the Divisional Forest Officer as an arbitrator.
6. The claim made by the assessee did not relate to any rate or tax or fee. It related to compensation for damage caused by the assessee to Government property during exploitation by the assessee of the lease granted to it. The interim report that was served on the assessee related to two years and were in the nature of intimation to the assessee about the infractions made. The liability was crystallised only when there was quantification and at no point of time earlier to that. Where a scheduled rate is prescribed, the liability can be fixed with precision. When there is no quantification by the concerned authority, the situation may be different. There must be an actual liability and not one which may arise in future. Contingent liability which may or may not arise cannot be allowed as a deduction. The service of the report in terms of Rule 26 of the Rules do not straightaway create any liability in the person on whom the reports are served. As indicated above, they are in the nature of an intimation about infractions. In that view of the matter, we are of the considered opinion that the view of the Tribunal is in accordance with law.
7. The question referred is answered in the negative, in favour of the Revenue and against the assessee. No costs.
D.M. Patnaik, J.
8. I agree.