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TMI Blog1987 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowing the provision for purchase tax. He was told that the liability towards purchase tax was a matter of dispute between the Commercial Tax Department and the assessee and since there was a dispute, provision is being made in the accounts. It was also submitted before the Commissioner (Appeals) that in similar cases such provisions had been allowed as deduction. The Commissioner (Appeals) found that the liability to purchase tax in respect of purchases made in the course of the export of these goods outside India had been the subject-matter of a decision by the Supreme Court in the case of Sterling Foods v. State of Karnataka 63 STC 239. He found that the Supreme Court has held that fishing industry is not liable for payment of purchase tax. This judgement is dated 21-7-1986. According to the Commissioner (Appeals) this judgement would be applicable to the Kerala State also and, therefore, there was no liability for the payment of purchase tax. He, therefore, held that the provision for purchase tax was wrongly allowed by the ITO. He directed the ITO to withdraw the same. Thus there was an enhancement to the income. 4. Shri Narayanan for the assessee first questioned the jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider this head of expenditure. This is so especially when the amount is very large. It may be that the ITO had not asked for the details of purchase tax. But that may be under the impression that the purchase tax provision is an allowable item of expenditure. The source of income being business and business being one integral unit purchase tax provision must also be considered as component part of this unit of business. Therefore, when the Commissioner (Appeals) considers afresh the question of allowance of provision for purchase tax he was not making enquiries in respect of a new source of income. He was making enquiries only in respect of that source of income which is already considered by the ITO. 6. The decision of the Madras High Court relied on by Shri Narayanan can be easily distinguished. In that case, the appellate authority was considering a receipt which was apart from the regular receipts. In this case, we are considering an expenditure in respect of one integrated business. We, therefore, hold that the Commissioner (Appeals) had jurisdiction. 7. The next question is whether the assessee is entitled to the deduction of purchase tax. Now the assessee is purchasing pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 173. The High Court held that commercial prawns which are purchased by the assessee and prawns which are exported after processing are one and the same commodity and, therefore, the assessee was eligible for the exemption from purchase tax. It would appear that the State of Kerala has filed an appeal against this decision of the Kerala High Court to the Supreme Court and that appeal is pending. 10. We may now refer to the decision of the Supreme Court in the case of Sterling Foods. The Supreme Court was there considering the exemption under section 5(3) as in this case. There also the assessee was a sea food exporter who purchased prawn and processed it before exporting it. They observed : "Processed or frozen shrimps, prawns and lobsters are commercially regarded the same commodity as raw shrimps, prawns and lobsters. When raw shrimps, prawns and lobsters are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing, they do not cease to be shrimps, prawns and lobsters and become another distinct commodity. They are in common parlance known as shrimps, prawns and lobsters. There is no essential difference between raw shrimps, prawns and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Act. The Third Schedule to the Karnataka Act, as originally enacted, enumerated the commodities on which a single point tax was leviable under sub-section (3)(b) of section 5 and there were 13 entries in this Schedule. None of these 13 entries included shrimps, prawns and lobsters with the result that the purchases of shrimps, prawns and lobsters were not eligible to purchase tax. This position continued right from the time of the original enactment until 31st March, 1978, when the Karnataka Sales Tax (Amendment) Act, 1973, introduced a new entry 13a in the Third Schedule with effect from 1st April, 1973. This entry included "shrimps, prawns and lobsters" in the Third Schedule. There was another amendment made in the Karnataka Act in 1978 by the Karnataka Sales Tax (Amendment) Act, 1978, and section 9 of this amending Act made certain amendments in entry 13a with retrospective effect, so that from 1st April, 1973, entry 13a included in the Third Schedule "shrimps, prawns and lobsters other than processed or frozen shrimps, prawns and lobsters" and the explanation to entry 13a provides that "processing" shall include "all or any of the following, namely, cutting of head or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de as "shrimps, prawns and lobsters". It is because entry 13a as it stood prior to its amendment, would have, on the plain natural meaning of the expression "shrimps, prawns and lobsters" included processed and frozen shrimps, prawns and lobsters, that ii became necessary for the State Legislature to amend entry 13a with retrospective effect so as to exclude from the scope and ambit of that entry processed or frozen shrimps, prawns and cocktails. Now when the State Legislature excluded processed or frozen shrimps, prawns and cocktails form the ambit and coverage of entry 13a, its object obviously was that the last purchases of processed or frozen shrimps, prawns and cocktails in the State should not be eligible to State sales tax under entry 13a. The State Legislature was not at all concerned with the question as to whether processed or frozen shrimps, prawns and lobsters are commercially the same commodity as raw shrimps, prawns and lobsters or are a different commodity and merely because the State Legislature made a distinction between the two for the purpose of determining eligibility to State sales tax, it cannot be said that in commercial parlance or according to popular sense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability by making an entry in the books that liability must be an existing legal liability and not merely a hypothetical one. When there are decisions holding the levy to be unconstitutional or invalid it will not be open for the assessee to make such a claim. It can be claimed only when the appeals have reached a finality and the liability had been crystallised. That is the decision of the Madras High Court in the case of CIT v. T. S. Srinivasa Iyer [1984] 146 ITR 526. The point at issue was whether the assessee could claim urban land tax as deduction. The levy of urban land tax was a matter of dispute and the High Court had held that the levy was not valid. Subsequently the Supreme Court upheld the validity of the levy. The Madras High Court held that the assessee can claim the deduction in the year in which the Supreme Court upheld the validity. It is, therefore, clear from this decision that earlier to the point of time when the Supreme Court passed its order there was no liability for urban land tax which could be allowed as a deduction. 13. Some light will be thrown on this issue when we consider the decisions where a levy found initially invalid was validated retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt and this was allowed by a single Judge on 28th of August, 1970. However, the Government had filed an Appeal against the order of the Delhi High Court. These assessee continued to claim before the ITO the liability towards payment of Central Excise. The ITO disallowed the claim and he pointed out that the Delhi High Court had held the levy to be invalid. Now the Allahabad High Court in this case upheld the assessee's claim for the deduction. Their reasoning was that since the Delhi High Court's decision had not become final and since the Central Excise authorities were raising demands against the assessee even in the accounting years the assessee was eligible for the deduction. The decision of the Allahabad High Court in the same assessee's case CIT v. J. K. Synthetics Ltd. (1983) 143 ITR 771 follows the same principle. This case can be distinguished. In this case, although the assessee was disputing the levy it was found as a fact that, Central Excise Department had not given up the claim for levy and was still raising demands. It is on this fact that, Allahabad High Court upheld the contention. It may be remembered that, a statutory liability will not cease to be a statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X
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