TMI Blog1988 (11) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... tax accounts but did not file an appeal against the assessment for the year 1970-71. Some relief was granted by the appellate court with the result that the order of the Income-tax Officer for non-inclusion of the amount relating to Central sales tax in the total income of the assessee assumed finality. The Income-tax Officer issued notices to the assessee under sections 154/155 of the Income-tax Act, 1961 (for short "the Act"), for the aforesaid three assessment years to show cause as to why the amounts shown in the Central sales tax accounts be not added to the total income of the respective years in view of the decision of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542. The assessee represented to the Income-tax Officer, as also to the Central Board of Direct Taxes. The Central Board of Direct Taxes declined to express any opinion and before the Income-tax Officer could finally decide the matter, the notices were challenged by filing CWP No. 883 of 1976. For the three subsequent years 1971-72, 1972-73 and 1973-74, the assessee took up the same position regarding the Central sales tax received by it and the Income-tax Officer did not include th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or is included in the sale price, it is a trading receipt within the meaning of the Act. Where an assessee follows the cash system of accounting, when the amount is received, it is shown as a trading receipt, and when the amount is paid, deduction can be claimed in regard to the tax paid in the relevant assessment of the accounting year in which tax is paid. To this extent, there is no dispute between the parties. When the mercantile system of accounting is followed by an assessee, the question arises as to when an assessee can claim deduction of the sales tax out of the trading receipts, whether upon payment or when the liability to pay arises. This question directly arose before the Supreme Court in Kedarnath's case [1971] 82 ITR 363 and it was held that the moment dealer made purchases or sales which were subject to sales tax, an obligation to pay the tax arose and since in that case the assessee was following the mercantile system of accounting, after upsetting the decision of the High Court, it was held that the assessee was entitled to deduct from the profits and gains of its business the liability to pay sales tax, which arose on sales made by him during the relevant previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the year in which the liability accrued and claimed deduction after the sales tax was determined or paid in another assessment year, the Revenue pleaded that deduction was claimable only in the year in which liability accrued and not when the liability was finally determined Taking all these stands of the parties, the courts have taken an unanimous decision that wherever an assessee follows the mercantile system of accounting, deduction is claimable only in the year in which the tax liability accrues and not in the accounting year in which the liability is finalised or the amount is actually paid. Reference may be made to, (1) CIT v. United India Woollen Mills [1981] 132 ITR 457 (P H), (2) CIT v. Guranditta Mal Shanti Parkash Zira [1987] 164 ITR 774 (P H), (3) CIT v. Kumardhubi Engineering Works Ltd. [1978] 115 ITR 58 (Cal), (4) CIT v. K. A. Karim and Sons [1982] 133 ITR 515 (Ker) I FBI, (5) N. K. Textile Mills v. CIT [1985] 152 ITR 594 (Delhi), (6) CIT v. Deora pu Cabncon Mfg. Co. Pvt. Ltd. [1985] 152 ITR 654 (MP) and (7) CIT v. Tata Chemicals Ltd. [1986] 162 ITR 556 (Bom). There is no view to the contrary except that the hon'ble single judge has considered that the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r he was entitled to claim deduction in the year in which the amount was actually paid on the basis of its manner of maintaining counts, did not, directly arise. In spite of the point not having directly arisen, the following sentence was added. "The party would, of course, be entitled to claim deduction of the amount as and when it passes it on to the State Government." The aforesaid sentence was considered by the hon'ble single judge as if a Bench of three judges had taken a view contrary to the decision of the two judges in Kedarnath's case [1971] 82 ITR 363 (SC). The author who prepared the headnote of the Income Tax Reports: has treated the aforesaid sentence as per curiam. We are of the view that the aforesaid sentence is a surplusage. In a later decision in Chowringhee Sales Bureau v. CIT [1977] 110 ITR 385, by the Calcutta High Court, the precise question, which is before us, arose relating to the same assessee, namely, Chowringhee Sales Bureau P. Ltd., who was also before the Supreme Court in [1973] 87 ITR 542. In Chowringhee Sales Bureau P. Ltd.'s case [1977] 110 ITR 385 for two later assessment years, Chowringhee Sales Bureau P. Ltd. collected certain amounts as sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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