TMI Blog1996 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... has brought in challenge the judgment and order dated May 13, 1987 (see [1988] 169 ITR 374), passed by the High Court of Orissa at Cuttack answering the referred question under section 256(1) of the Income-tax Act, 1961, against the Revenue and in favour of the assessee. It is the contention of the income-tax authorities that the question should be answered against the assessee. A few relevant facts centring round the question in controversy deserve to be noted at this stage. The relevant assessment year is 1971-72. The respondent-assessee is a limited company which manufactures and sells steel tubes in the State of Orissa. During the previous year relevant to the assessment year 1962-63, the assessee was liable to pay sales tax under the Central Sales Tax Act. The Sales Tax Officer completed the assessment in respect of the assessment year 1962-63 on March 31, 1966, and demanded an additional amount of Rs. 11,02,698. The assessee unsuccessfully carried the matter in appeal and then filed second appeal before the Sales Tax Tribunal. The Tribunal, by its order dated May 28, 1970, reduced the additional demand of sales tax to Rs. 2,22,161. On the basis of the aforesaid order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debit the liability in its books of account did not debar him from claiming the sum as deduction. The eligibility for getting deduction depends on the provisions of the law and not on the view which the assessee might take of his rights. The High Court, on the other hand, took the view in the light of the very same decision in Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363 (SC) that the liability to pay sales tax can be said to have initially accrued when the sales were effected but till the liability had ceased, it shall be treated to have continued to accrue and that when pursuant to the Tribunal's order a fresh demand notice was served by the Sales Tax Officer on the assessee, the liability of the assessee can be said to have accrued on receipt of such demand notice and, therefore, the assessee can claim the deduction under section 37 of the Income-tax Act during the assessment year 1971-72 even though the liability was of the assessment year 1962-63. It was submitted by learned counsel for the appellant that the aforesaid view of the High Court was erroneous. That the High Court had misread and misapplied the ratio of the decision of this court in Kedarnath Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, the assessee was not entitled to claim the deduction of the aforesaid amount of sales tax inasmuch as it had denied its liability to pay that amount. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The Income-tax Officer's aforesaid order was confirmed in the hierarchy of proceedings up to the Tribunal and also before the High Court in reference proceedings. The aforesaid view of the High Court was upturned by this court in the decision of Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363, wherein this court made the following pertinent observations (at page 366). " Now, under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment. It is significant that in the present case, the liability had even been quantified and a demand had been created in the sum of Rs. 1,49,776 by means of the notice da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a fact that the assessment for that year was completed by the Sales Tax Officer on March 31, 1966. However, in the mercantile system of accounting, liability to pay the quantified sales tax dues as per order of the Sales Tax Officer can be said to have accrued to the assessee for the relevant assessment year 1962-63. It is true that the assessee challenged the same and ultimately got the liability to pay the sales tax for the assessment year 1962-63, reduced in second appeal before the Sales Tax Tribunal on May 28, 1970, to Rs. 2,22,161. But that would not affect the accrual of liability to pay sales tax on the basis of the mercantile system of accounting. It was submitted by learned counsel for the respondent assessee that if such entire deduction of Rs. 11,02,698 was sought for by the assessee during the assessment year 1962-63 and ultimately as held by the Tribunal the liability was reduced to Rs. 2,22,161 an incongruous situation would have arisen. Such a contention cannot be countenanced for the simple reason that if ultimately the tax liability is reduced and if in retrospect it was found that during the relevant assessment year the assessee had claimed a large amount of de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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