2000 (7) TMI 997 - HC - Income Tax

Summary

Issues:
1. Deduction of additional sales tax liability after firm dissolution
2. Deduction for bonus liability post firm dissolution

Analysis:
1. Deduction of additional sales tax liability after firm dissolution:
The Tribunal allowed the deduction of additional sales tax liability of Rs. 2,58,032 despite the firm being dissolved. The contention was based on the sales tax orders dated 12-3-1962, where additional demands were raised. The assessee argued that this liability was allowable as business expenditure. The Department requested an opportunity to verify the amounts. The High Court referred to the decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and ruled against the assessee, in favor of the revenue.

2. Deduction for bonus liability post firm dissolution:
Regarding the bonus liability of Rs. 1,35,373 settled by the U.P. Government after the firm's dissolution, the Tribunal decided in favor of the assessee. The bonus liability related to the season 1960-61 and accrued under the U.P. Government order dated 1st May, 1962. The Tribunal held that this amount was an admissible deduction as business expenditure. Citing the decisions in CIT v. Swadeshi Cotton & Flour Mills (P.) Ltd. [1964] 53 ITR 134 (SC) and Laxmi Devi Sugar Mills v. CIT [1993] 200 ITR 6031 (SC), the High Court ruled in favor of the assessee, against the revenue, by answering the question in the affirmative.

In conclusion, the High Court upheld the deduction for bonus liability post firm dissolution but denied the deduction of additional sales tax liability after the firm's dissolution based on relevant legal precedents and the specifics of each case.