Business liability is to be determined on the basis of the date of accrual and discharge of liability
Wave Industries Pvt. Ltd. vs. State of U.P. & Ors. [C.A. No. 9272-9272 of 2022]
RELEVANT PARAGRAPH
15. There is no dispute that the liability towards the duty in question for the Amroha unit are in respect of business transactions for the period anterior to the signing date of the Slump Sale Agreement. Moreover assessment orders and recovery citations have been issued by the taxing authorities in the name of the UPSSCL. Therefore, can such liability for transactions prior to the Slump Sale Agreement dated 17.7.2010 be fastened on to the purchaser.
16. In Bharat Earth Movers vs. Commissioner of Income Tax, Karnataka (2000) 6 SCC 645, on the issue of contingent liability, Justice R C Lahoti in his opinion, which has stood the test of time, on behalf of the three Judge Bench stated the following:-
“4. 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 praesenti 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.”
17. In the case in hand, the business liability for the Amroha unit had definitely arisen out of the operation of the unit during the period before the same was sold to the appellant, although the liability is to be quantified and discharged at a future date. When the liability is capable of being estimated with reasonable certainty, the liability is not to be treated as a contingent one and should be considered as a liability which may be discharged at a future date. Such being the position in law and the liability in question not being a contingent one, the same cannot in our view be fastened on the purchaser who were not operating the unit, prior to the Slump Sale Agreement dated 17.7.2010.