TMI Blog1985 (9) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessments for the accounting period 1972-73 and 1973-74 were reopened. In the reopened assessments, the bottles were taken along with the wines and spirits and subjected to levy of sales tax at 25 per cent. In this manner, an additional demand of Rs. 41,893 was raised in the sales tax assessment year 1972-73 and Rs. 65,956 for the sales tax assessment year 1973-74. Both these assessment orders are dated 7-7-1978 which fell within the accounting year ended 30-9-1978 assessable to income-tax assessment year 1979-80. 4. The assessee had filed appeals against the sales tax assessments and the Sales Tax Assistant Commissioner (Appeals) dismissed the appeals. Thereafter, the assessee filed appeals before the Sales Tax Appellate Tribunal. They passed an order on 24-1-1984 holding that the reopening of the sales tax assessments was bad in law. Thus, by their orders of the Tribunal, the additional demand raised had been wiped out. 5. Before the ITO for the assessment year 1979-80, the assessee claimed that the sales tax demand made was an allowable deduction. The ITO held that they were not allowable. The Commissioner (Appeals) agreed with the ITO. He pointed out that unlike the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ore Co. Ltd. [1978] 112 ITR 734 and submitted that where a statutory demand is raised it is immaterial whether the assessee has accepted or contested the demand and in either case it will be admissible as a deduction. He then pointed out whether a liability accrues or not depends upon the commercial principles applicable in the facts of the case. A statutory liability like the additional liability for payment of sales tax becomes real and enforceable only in the year in which the demand notice is received. Therefore, it is an allowable deduction for the assessment year 1979-80. He submitted that the test to be applied is that of a commercial man---whether a commercial man would consider the additional liability as having arisen in the original assessment years or in the year in which the demand notice was received. He submitted that it will be only in the latter year. He also submitted that the distinction between original sales tax demand and the additional sales tax demand has been realised by the Allahabad High Court in the case of CIT v. Banwari Lal Madan Mohan [1977] 110 ITR 868. That authority has held that the additional demand is allowable in the year in which the demand w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to some of the authorities on this point. We may first of all refer to the decision of the Kerala High Court which apparently supports the department's contention. In the case of L.J. Patel Co. v. CIT [1974] 97 ITR 152 (Ker.), the assessee was following the mercantile system of accounting. The firm was liable for excise duty and the rates of excise duty were enhanced by the Finance Act, 1951. As a result of this enhancement the assessee had to pay Rs. 31,675 as additional excise duty. This should have been paid in 1952. The assessee did not pay but challenged the impost on various grounds but did not succeed. Thereafter it was paid in 1962 and claimed as deduction in the assessment year 1963-64. The High Court pointed out that where the liability of the assessee who was maintaining the mercantile system of accounting to pay excise duty arose in 1952, but as he was contesting the liability, the amount was paid only in 1962, the deduction of the amount paid could be claimed only in 1952 in accordance with section 13 of the Indian Income-tax Act, 1922 ('the 1922 Act') and section 145(1) of the 1961 Act. The High Court held that the assessee cannot claim the deduction in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's counsel. The Delhi High Court has explained as to the circumstances under which the ratio of the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd.'s case would apply. According to the Delhi High Court that ratio is limited to those cases in which the demand for sales tax is raised by the Sales Tax Department before the income-tax assessment for the relevant year has actually been completed, as no revised return can be filed after the assessment is over. So the scope of this authority has a limited field. This decision had been relied on to show that the additional liability for sales tax arose much later in point of time and the assessee could not have claimed these deductions in the original assessments of 1972-73 and 1973-74. 13. We may now refer to the decision of the Calcutta High Court in the case of CIT v. Orient Supply Syndicate [1982] 134 ITR 12. That was a case of liability for contribution to employees' provident fund. This is also a statutory liability like sales tax. The assessee was under the impression that there was no liability to make this contribution. The liability was also not enforced in the earlier years. However, in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is perverse or incorrect." Thus as per the ratio of this decision, one has to look into the question from a commercial point of view of a commercial man and also take into account the reality of the situation. If these are taken into account then, although the sale took place in an earlier year, the liability arose only during the accounting year in which the additional demand was raised by the Sales Tax Department. 14. Now the decision of the Calcutta High Court in the case of Orient Supply Syndicate is also an authority to show that on the main principle having laid down there is no difference between the principles laid down by the Kerala High Court and the Madras High Court in V. Krishnan's case. The Calcutta High Court has stated : "... We are in respectful agreement with the views of the Madras High Court and the Kerala High Court as noted above...." 15. In a passage appearing in the Madras High Court's decision in V. Krishnan's case similar view is expressed where the liability depended upon interpretations of difficult provisions of taxing statute. The Madras High Court observed : "... There may be cases where the assessee is not in a position even to estimate his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard after the Sales Tax Tribunal has quashed the assessments then it should be allowed in favour of the department. Thus, the decision will not depend upon the income-tax law or accounts but would depend upon the time at which the appeal is heard. In our opinion, this is not a good principle to go by. 18. The next issue is whether there is cessor of liability in view of the decision of the Sales Tax Tribunal. Shri Radhakrishnamurthy, for the department, has submitted that a direction should be given that the provision of section 41(1) should be made applicable for the year in which the Sales Tax Tribunal had quashed the assessments. Shri Ratnakar had submitted that the Sales Tax Department had not accepted the Tribunal's order and a revision petition has been filed. We had made further enquiries as to what is the correct position of the revision petition. In their letter dated 28-8-1985, the assessee had stated that on enquiries made from the Sales Tax Department, the assessee had been informed that the Government had not accepted the order of the Tribunal and filed a tax revision case in the Andhra Pradesh High Court and papers were forwarded to the Andhra Pradesh High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of Rameshwar Prasad Kishan Gopal v. V.K. Arora, ITO [1983] 141 ITR 763. This was a case of levy of excise duty. The assessee had challenged the levy and the High Court held that the provision levying excise duty was ultra vires. However, against the High Court's order, appeals were filed before the Supreme Court and the appeals were pending. In the meanwhile, the ITO initiated reassessment proceedings for the year in which the High Court held that the levy was invalid. The amount refundable was treated as income under section 41(1). The Allahabad High Court, disposing of the income-tax reference held that since the appeals were pending before the Supreme Court, liability was not finally extinguished so as to treat the refund receivable as income liable to tax. 21. We may also mention that the Andhra Pradesh High Court appears to be holding a similar view in these matters although it is not made explicit in their order. In the case of Addl. CIT v. T. Nagi Reddy Co. [1976] 105 ITR 669 (AP) the assessee was maintaining accounts on mercantile basis and the sales tax collected was not paid to the Sales Tax Department pending adjudication of the dispute over liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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