CIT Vs National Agricultural Co-Op. Marketing Federation of India Ltd (Delhi High court)
The Delhi High Court considered an appeal involving three substantial questions of law. The first two questions related to the allowability of interest payable under an arbitral award as revenue expenditure and whether such interest could be allowed despite the provisions of Section 40(a)(i) of the Income Tax Act. The third question concerned the allowability of expenditure of ₹42,89,207 incurred on gifts, boarding, lodging, and related expenses during a General Body Meeting as business expenditure under Section 37 of the Act.
At the outset, counsel for the assessee submitted that the first two questions no longer required adjudication because the Supreme Court, in its judgment dated 22.04.2020 in National Agricultural Co-operative Marketing Federation of India v. Alimenta S.A., had set aside the arbitral award. Consequently, the question of payment of interest arising from that award no longer survived. The Revenue did not dispute that the underlying award had been set aside.
The High Court agreed that since the Supreme Court had set aside the award granting additional compensation, the liability to pay interest under that award also ceased to exist. Therefore, the issue relating to the allowability of interest expenditure did not survive. The Court further observed that since the assessee was not required to pay such interest, the allowability of the provision created for interest had to be reconsidered. Accordingly, it directed the Assessing Officer to disallow the deduction of ₹7,46,44,929 claimed by the assessee as provision for interest.
