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TMI Blog1971 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Calcutta High Court in an income-tax reference. The assessee, who is the appellant, is a public limited company doing the business of jute and manufacturing of jute goods. The method of accounting followed by the assessee is the mercantile system. During the assessment year 1955-56 (the previous year ended on 31st December, 1954), the assessee claimed a deduction of Rs. 1,49,776, on account of sales tax determined to be payable by the sales tax authorities on the sales made by the asssesee during the aforesaid previous year. The sequence of dates may be mentioned. The income-tax return was filed on 13th January, 1956. The demand notice was served by the sales tax authorities on the 21st November, 1957. On 9th November, 1959, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility was not enough. There had to be an expenditure in the first place and it must be laid out or expended wholly and exclusively for the purpose of such business. The High Court further held, that unpaid and disputed sales tax could not be validly deducted in the computation of business income even under section 10(1) of the Act. It has been submitted on behalf of the assessee that sales tax paid or unpaid would be admissible deduction under section 10(2)(xv) as well as under section 10(1). It is pointed out that if the method of accounting adopted by the assessee is cash system, it would qualify for deduction only in the year in which it has been actually paid. If the method of accounting is the mercantile system, then the deduction wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. Where an assessee is under a liability or is bound to make certain payment from the gross receipts, the profits and gains can only be the net amount after such an amount is deducted from the gross profits or receipts. In Commissioner of Income-tax v. Royal Boot House, it was held that where the assessee followed the mercantile system of accounting and, without disputing the liability to pay the sales tax, had made a provision for its payment in its account even though he had not actually paid the tax over to the authorities, the assessee was entitled to deduction in respect of the provision for sales tax from his income under section 10(2)(xv) of the Act. It was pointed out that under the provisions of the sales tax statutes, the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date. In Pope The King Match Factory v. Commissioner of Income-tax, a demand for excise duty was served on the assessee and though he was objecting to it and seeking to get the order of the Collector of Excise reversed, he debited that amount in his accounts on the last day of his accounting year and claimed that amount as a deductible allowance on the ground that he w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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