TMI Blog1988 (11) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year. The Income-tax Officer rejected the contention of the assessee and held, inter alia, that the liability for the said sales tax pertained to the period 1968-69 and not to the relevant assessment year and as such the assessee was not entitled to the deduction as claimed. Being aggrieved, the assessee preferred an appeal from the order of assessment. It was contended on behalf of the assessee before the Appellate Assistant Commissioner, inter alia, that as the liability for payment of sales tax was determined on December 16, 1970, during the relevant accounting year, the same should have been allowed as a deduction. The Appellate Assistant Commissioner held that under the mercantile system of accounting, such liability should be ascertained and claimed in the relevant accounting year. Where the accounts were maintained on cash basis, such claim could be allowed only in the year in which the liability was actually paid. As the assessee was following the mercantile system of accounting, the claim for deduction of the liability on account of sales tax could be entertained only in the accounting year when such liability accrued. The Appellate Assistant Commissioner no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred as a question of law arising out of the order of the Tribunal for the opinion of this court : " Whether, on the facts and in the circumstances, the Appellate Tribunal was justified in law in allowing the sales tax liability in the assessment year 1971-72 ?" Learned advocate for the Revenue contended, at the hearing, that the law stood settled by the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd, [1971] 82 ITR 363, and the liability for sales tax having arisen in an earlier assessment year, the assessee was not entitled to claim a deduction thereof in a subsequent assessment year. The fact that the liability for sales tax was not quantified earlier made no difference to the position as the same was a statutory liability and had accrued in the earlier assessment year when the transaction took place. As the assessee did not make any payment on account of sales tax pursuant to the said order of assessment in the relevant assessment year, his claim for deduction was neither on the basis of the mercantile system of accounts, nor on accounts maintained on the cash basis. In any event, it was not the case of the assessee that it maintained its accounts on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was independent of the assessment and if the assessee followed the mercantile system of accounting, it was entitled to deduct from its business profits and gains, its liability to sales tax assessed during the relevant period. On the facts, it was held that the assessee was entitled to the deduction as claimed and the liability to pay such sales tax did not cease because the assessee challenged the sales tax assessment in further proceedings or failed to debit such liability in its books of account. The same would not debar the assessee from claiming the said amount as deduction in its income-tax assessment. (b) L. J. Patel and Company v. CIT [1974] 97 ITR 152 (Ker). In this case, upon enhancement of excise duty by the Finance Act, 1951, the assessee became liable to pay an amount on account of additional excise duty in the year 1952. The assessee, however, challenged the demand in further proceedings which did not succeed and, ultimately, the amount of excise duty was paid in 1962. On these facts, a Division Bench of the Kerala High Court, following the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd.'s case [1971] 82 ITR 363, held that as the assessee maintained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions took place and, therefore, the assessee was entitled to claim deduction of tax in the said relevant years and not in the subsequent years. The notification for exemption was published in October 1973, and cancelled in November 1973, and as such did not affect the position. The Full Bench noted the decision of the Assam High Court in Nathmal Tolaram's case [1973] 88 ITR 234 (Gauhati), and held that the said decision was rightly dissented from in the earlier judgment of the Kerala High Court in L. J. Patel and Co.'s case [1974] 97 ITR 152. Learned advocate for the Revenue also relied on and cited Buddala China Venkata Rao and Co. v. CIT [1978] 112 ITR 58, a decision of the Andhra Pradesh High Court, CIT v. Rajeshwari Distributors (P.) Ltd. [1980] 125 ITR 618, a decision of the Calcutta High Court, State Bank of Travancore v. CIT [1986] 158 ITR 102, a decision of the Supreme Court and CIT v. St. George Motors [1986] 161 ITR 444, a decision of the Kerala High Court. No further light is thrown on the question involved in the present reference by the principles laid down in the said decisions and as such the same need not be considered any further. Learned advocate for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it his own estimate of income and withhold the payment as demanded. Such a demand would be a debt owed by the assessee within the meaning of section 2(m) of the Wealth-tax Act, 1957. (d) CIT v. Nathmal Tolaram [1973] 88 ITR 234 (Gauhati). In this case, the assessee entered into transactions in jute during the periods ending on March 31, 1949, September 30, 1949, and March 31, 1950, for which the assessee was assessed to sales tax. The assessee filed appeals and revisions against such assessments without success. A reference to the High Court also proved unsuccessful. A conditional leave to appeal to the Supreme Court was granted with a condition directing deposit of the amount of demand with the assessee's bankers. The assessee was ultimately unsuccessful also in the proceedings before the Supreme Court. The assessee, who maintained his accounts under the mercantile system, did not make any provision for payment of the aforesaid sales tax during the relevant accounting years when the transactions were had. In a subsequent accounting year, the relevant assessment year being 1958-59, the assessee, in his income-tax assessment, claimed deduction of sales tax to which it had been ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re period and the same was paid by the assessee in the said assessment year. It was also found that the decision of the provident fund authority was pending as to whether the assessee came within the purview of the Employees' Provident Funds Act. The decision of the Tribunal was upheld in a reference by a Division Bench of the Calcutta High Court. The High Court considered the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd.'s case [1971] 82 ITR 363, as also the decision of the Assam High Court in Nathmal Tolaram's case [1973] 88 ITR 234 (Gauhati). The High Court agreed with the view taken by the Kerala High Court in L. J. Patel and Co.'s case [1974] 97 ITR 152, and the Madras High Court in V. Krishnan's case [1980] 121 ITR 859, but did not agree with the view of the Assam High Court expressed in Nathmal Tolaram's case [1973] 88 ITR 234. The High Court observed as follows : "But, here, as we have mentioned, the position is not a theoretical position as to whether a statutory liability arose in the year when it became due or when it was discharged. Here, the facts are that the assessee is a firm-whether it is a factory employing certain amount of employees and whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand was raised by the sales tax authorities before the income-tax assessment for the relevant period had actually been completed. No revised return could be filed by the assessee in the relevant assessment year where the assessment had already been completed and it would be open to the assessee to contend that the liability had accrued only when the demand was raised and not earlier. It was held that the assessee was entitled to claim deduction of sales tax demand in the assessment year 1964-65. (h) Shalimar Chemical Works Private Ltd. v. CIT [1987] 167 ITR 13 (Cal). In this case, by Act No. 44 of 1966, the definition of an "employee" in section 2(9) of the Employees' State Insurance Act, 1948, was amended and further classes of employees were brought within the purview of the said Act. The said amended section was challenged before the High Courts by a number of employees. The assessee in that case came within the mischief of the amended section 2(9) of the said Act and became liable to contribute for such insurance on and from January 1968. The assessee, however, did not make any contribution thereunder nor did it initiate any proceedings on its own challenging the said ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer, whose order was upheld by the Income-tax Appellate Tribunal. On a reference, a Division Bench of the Orissa High Court held that though the assessee maintained its accounts on mercantile basis, it was entitled to claim deduction of its liability towards sales tax in the year when such liability was finally determined by the Sales Tax Tribunal. The Orissa High Court noticed the decision of the Assam High Court in Nathmal Tolaram's case [1973] 88 ITR 234, and of the Kerala High Court in L. J. Patel and Co.'s case [1974] 97 ITR 152, and held that both the decisions were correct in their respective facts. It is not disputed by the assessee in the instant case that it became liable to pay sales tax during the period 1968-69. It is also established clearly that the assessee followed the mercantile system of accounting and as such it became entitled to claim deduction of its liability towards sales tax in the relevant accounting period. In fact, it must have claimed the same deduction in the relevant earlier accounting year on account of sales tax, inasmuch as subsequently in the assessment year 1971-72 it did not claim deduction of the entire amount of sales tax as later ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down that where an assessment of income-tax had already been completed prior to the demand raised by the sales tax authorities, it would be open to the assessee to contend that the liability on account of such demand had accrued only when the demand was raised and not earlier. In Kalinga Tubes Ltd.'s case [1988] 169 ITR 374, the Orissa High Court held that an assessee was entitled to claim deduction of its liability towards sales tax in the year when such liability was finally determined by the Sales Tax Tribunal. The Orissa High Court did not consider the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd.'s case [1971] 82 ITR 363, at all. However, the decision of the Assam High Court in Nathmal Tolaram's case [1973] 88 ITR 234 and of the Kerala High Court in L. J. Patel and Co.'s case [1974] 97 ITR 152, were both noted and it was held by the Orissa High Court that both the decisions were correct in their respective facts. No particular reasons have been recorded in the said judgment of the Orissa High Court in support of the views expressed and as such it is not possible to hold that any new principle has been laid down by the Orissa High Court. The decisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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