TMI Blog1986 (2) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... e dismissed on December 5, 1960. Thereafter, the Board of Revenue in exercise of its revisional jurisdiction under section 34 of the Madras General Sales Tax Act took the view that the turnover assessed in the case of the assessee represented only the sale value of cotton despatched by the assessee from Madras State to mills in other States and apart from the above transactions, the assessee had sold cotton to mills inside the State as also to mills outside the State during the movement of the goods from one State to another. These sales, according to the Board of the Revenue, fell under section 3(b) of the Central Sales Tax Act, 1956, and were assessable. By its order dated February 28, 1964, the Board of Revenue refixed the taxable turnover as Rs. 1,53,07,997.75 which was taxable at 1 per cent. The assessee brought the matter to this court in the form of Tax Case No. 244 of 1964. This court held following the decision of the Supreme Court in State of Mysore v. Lakshminarasimhiah Setty and Sons [1965] 16 STC 231 (SC) that the inter-state transactions of the assessee in cotton were not taxable under the Central Sales Tax Act, 1956, since the sale of cotton was taxable at the stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Tax Officer, Madurai-II, determined the tax liability of the assessee at Rs. 1,53,079.98 and giving credit for an amount of Rs. 12,764.40 which was already paid as tax, a demand notice was directed to be issued for Rs. 1,40,315.58. This order came to be made on August 31, 1972, i.e., in the account year 1972, for which the relevant assessment year would be 1973-74. This is how a deduction in respect of Rs. 1,40,316 was sought by the assessee. The Income-tax Officer disallowed the deduction on the ground that the original order of assessment under the Central Sales Tax Act had been made as early as on February 28, 1964, and the liability having arisen then, the assessee should have made the claim for the relevant assessment year. In appeal, the Appellate Assistant Commissioner accepted the contention of the assessee that the liability to pay Rs. 1,40,316 towards Central sales tax in respect of the year 1957-58 arose only on August 31, 1972, during the relevant previous year and hence should be allowed for the assessment year 1973-74. The Revenue filed an appeal against this order of the Appellate Assistant Commissioner before the Tribunal. The two learned members of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctible properly in the year in which it was paid. The amount was admittedly paid on May 15, 1975. A further stand which has been taken now is that when the Supreme Court by the decision on January 7, 1971, held that the sales were taxable, then the assessee should have made provision for its liability in the year 1971 itself. The substance of the argument is that the amount would be deductible only either in the year in which the sales took place or in the year of actual payment or on the facts of the present case in the year in which the decision of the Supreme Court was given holding that the sales were liable to be taxed under the Sales Tax Act. The learned counsel for the assessee contends that there is no principle of accountancy which prevents the assessee from claiming, under the facts of the instant case, a deduction, when actually the liability was determined by order dated August 31, 1972. It is contended that in view of the decision of the Supreme Court in Yaddalam's case [1965] 16 STC 231, there never was any liability to pay Central sales tax in respect of the sales in question which took place in 1957-58. The decision of the Supreme Court in Yaddalam's case was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability to be assessed. The question in the instant case, therefore, is not whether at any earlier point of time the assessee could have claimed this deduction but whether such a deduction could be claimed only on the footing that the liability became ascertained on August 31, 1972. If the position of law was that till January 7, 1971, the transactions of the year 1957-58 were not liable to Central sales tax, it was not necessary for the assessee to claim such deductions in the assessment years relevant to the accounting years in which the transactions had taken place. It is argued on the basis of the decision in the Kedarnath Jute Manufacturing Company's case [1971] 82 ITR 363 (SC), that in the case of sales tax, the liability arises in the year in which the sales took place. The Supreme Court had undoubtedly observed in that decision that the moment a dealer made either purchases or sales which were subject to sales tax, the obligation to pay the tax arose and although that liability could not be enforced till quantification was effected by assessment proceedings, the liability for payment of tax was independent of the assessment. That was a case in which the assessee followed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date on which he received the Collector's demand for payment and that his endeavour to get out of that liability by preferring appeals could not in any way detract from or retard the efficacy of the liability which had been imposed upon him by the competent excise authority. In our judgment, the above decision lays down the law correctly. " Now, the decision in Kedarnath Jute Manufacturing Company's case [1971] 82 ITR 363 (SC) cannot, in our view, be read as laying down that a liability by way of sales tax can be claimed as a deduction only in the year in which the sales took place. That may be the earliest period during which such a claim for deduction could be made. We must point out that when the Supreme Court approved the decision of this court in the Match Factory's case [1963] 50 ITR 495 (Mad), apart from approving the observations that even though a certain liability is disputed by way of appeal, the amount demanded by the Collector of Central Excise can be debited in the accounts, those observations, in our view, also indicate that a demand made by the Collector of Central Excise would also enable the assessee to claim a deduction in respect of that demand. Those observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, permitted as deductible. The conclusion reached by this court in that decision will, therefore, show that notwithstanding the fact that immediately after the decision of the Supreme Court, the liability by way of urban land tax was not shown in the accounts, this court permitted the deduction observing that " this book-keeping omission, however, is not material for the claim of deduction ". Once again the argument of the Revenue in that case was that the date of payment was the date of accrual of the liability. It was this argument which has been rejected by this court. The following observations are, in our view, significant (p. 537 of 146 ITR): " Having regard to the nature of the Urban Land Tax Act as laid down in the Supreme Court's judgment above quoted, we are satisfied that the assessee, who is maintaining accounts under the mercantile system, would be well within its right in making a claim for deduction for the urban land tax liability even prior to the actual demand being made on it by the concerned taxing authority, and if it should make such a claim, whatever provision it has made would be eligible for deduction as a charge against profits for the purpose of compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the Revenue to another decision of the Madras High Court in M. S. Balakrishna Chetty v. CIT [1975] 101 ITR 557. In that case, the sales tax authorities determined the turnover of the assessee for 1955-56 and 1956-57 at ten times the turnover not disclosed in the returns and added the same. In revision, the High Court adopted the multiple of seven. During the pendency of the revision, the assessee obtained a direction to pay the disputed tax of Rs. 26,317 in monthly instalments of Rs. 1,000 each and paid the entire sum before April 1, 1961. In its accounts for 1963-64, relevant for the year ending March 31, 1963, the assessee adjusted a sum of Rs. 23,389 as sales tax liability, which sum was arrived at after adjusting the refund received in pursuance of the High Court's order and claimed this amount as a deduction in its income-tax assessment for the said year. The tax authorities and the Tribunal rejected this contention. In reference, this court took the view that the sales tax liability would be referable only to the year in which the relevant transaction of sale or purchase took place which was in 1955-56 and 1956-57 since the assessee had adopted the mercantile system of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have weighed with the Division Bench while disallowing the deduction was the view that on August 31, 1971, only a notice of demand was issued as will be clear from the following observations (p. 862) : " There is nothing in the Sales Tax Act which would require the issue of demand notice as a condition precedent for making it a liability. In these circumstances, the assessee's claim could not have been allowed as deduction by the Tribunal in the year under consideration." We have sent for the original records of this tax case and we find that what happened on August 31, 1971, was not that a notice of demand was issued but two assessment orders, one for the account year 1966-67 and the other for the account year 1967-68 were made on August 31, 1971. August 31, 1971, was primarily, therefore, the date on which the assessment order was passed. It is true that under rule 16 of the Tamil Nadu General Sales Tax Rules, there is an obligation on the assessing authority to serve upon a dealer a notice in Form No. B-3 and/or Form No. B-9 when an amount is found due from the dealer towards the final assessment or revision of assessment. This notice may be served along with the order i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that liability in the manner permissible by law. The cases referred to by the learned judges cannot, in our view, be taken to be as exhaustive of all contingencies with regard to deductibility in respect of sales tax. The learned counsel for the assessee has relied upon a decision of the Gauhati High Court in CIT v. Nathmal Tolaram [1973] 88 ITR 234 in which it has taken the view that though the assessee who was maintaining his accounts under the mercantile system did not make any provision for payment of sales tax in respect of transactions during the periods ending March 31, 1949, to March 31, 1950, but claimed deduction when the demand for sales tax was made only in the accounting year 1957-58, that deduction was allowed on the ground that a final demand for sales tax was made only during the previous year relevant to the assessment year 1958-59 and it was, therefore, properly allowable as deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Gauhati High Court took the view that in the absence of a legal bar in the way of the assessee claiming the expenditure in the year of demand for which provision has already been made in the accounting year, deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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