2000 (3) TMI 166 - AT - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 61,75,888 should be taxed under section 41(1) of the Income-tax Act, 1961.
2. Whether there was a cessation of liability for the purchase tax during the relevant assessment year.

Detailed Analysis:

Issue 1: Taxation of Rs. 61,75,888 under Section 41(1)
The department contended that the sum of Rs. 61,75,888, which was credited to the Profit & Loss Account by the assessee, should be taxed under section 41(1) of the Income-tax Act, 1961. The assessee argued that the amount should not be taxed as there was no cessation of liability since the Sales Tax Department had challenged the favorable order of the Sales Tax Tribunal before the High Court. The Ld. Commissioner (Appeals) held that the Assessing Officer was wrong in taxing the said sum under section 41(1) as there was no finality in respect of the liability of the purchase tax. The Tribunal upheld this view, stating that the liability could not be considered ceased until the matter reached finality.

Issue 2: Cessation of Liability for Purchase Tax
The assessee had paid the purchase tax under protest and had been allowed deductions in the previous years. The Sales Tax Tribunal ruled in favor of the assessee, but the Sales Tax Department appealed to the High Court, which reversed the Tribunal's decision. The assessee further appealed to the Supreme Court, which ultimately decided against the assessee. The Tribunal noted that until the Supreme Court's decision, the liability had not ceased. The Tribunal cited several cases, including J.K. Synthetics Ltd. v. O.S. Bajpai, ITO [1976] 105 ITR 864 and CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518, to support the view that the liability does not cease until a final decision is reached.

Conclusion:
The Tribunal concluded that the Assessing Officer's decision to tax the sum of Rs. 61,75,888 under section 41(1) was incorrect as the liability had not ceased during the relevant assessment year. The Tribunal upheld the order of the Ld. Commissioner (Appeals), stating that the liability could not be considered ceased until the matter reached finality in the Supreme Court. Therefore, the appeal of the department was dismissed.