TMI Blog1981 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... le. There was a delay of many years in the making of assessments, and in the raising of the tax demand on the owners of urban lands, right from 1963 onwards. This was due to the pendency of court proceedings in which the validity of the Act was being challenged. Amongst the impugned provisions of the Act was an enabling provision under which urban land tax authorities had the power and the authority to fix the market value of the lands for the purposes of levy of the tax. The tax was determined at a percentage on the market value as determined by the assessing authority. Our High Court struck down this provision as unconstitutional. The ground on which they did St) is not very material. For, on appeal by the State Government the Supreme Court reversed the decision of this court and upheld the validity of this measure. The Supreme Court's decision was rendered in 1969. It is reported as Asst. Commr. of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603 (SC). All the while, right from 1963 till the Supreme Court's decision, urban land tax assessments had not been made against most of the owners of lands. The tax liability for every year from 1963 onwards was thus ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [1970] 75 ITR 603 (SC). Soon afterwards, the divided father died. It was only subsequently that the urban land tax authorities levied their assessments from 1963 onwards, and issued the tax demands on the divided son as the surviving member of the family. Under these assessments urban land tax was demanded in the total sum of Rs. 52,069. This amount covered urban land tax liability on the family holdings for seven years, running from the first assessment year under the Urban Land Tax Act, namely, the year beginning from July 1, 1963, up to the last year commencing from July 1, 1969. The tax so determined was paid on behalf of the family on December 18, 1969. By this time, the assessee-family's return for the purpose of income-tax for the assessment year 1970-71 had already been filed. The assessee had always been following, for its cinema studio business, the financial year as its account year. For the last and concluding assessment year 1970-71, however, the family did not have the full run of the whole account year right up to its normal year-end, namely, March 31, 1970, for, as already mentioned, the family had, in the meantime, gone out of existence even on July 7, 1969. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's mercantile method of accounting. The assessee, however, appealed to the Tribunal on the aspect of the case held against it. It was contended on behalf of the assessee that there was no warrant for the Assistant Commissioner restricting the deduction to the urban land tax liability for the last year alone. The Tribunal agreed, in one sense, with the assessee's contention. They referred to the legislative and judicial history of the Urban Land Tax Act and also to the history of the partition in the assessee's family. They took the View that under the mercantile system of accounting, which the assessee was pursuing and which governed the computation of profits of the assessee's business, the assessee could very well have made a provision for urban land tax, when once it became clear after the Supreme Court ruling that there was nothing in the way of the State Government authorities going ahead with the assessments under the Urban Land Tax Act. The Tribunal said that this might have been done immediately after the Supreme Court decision on the validity of the Act. The Tribunal observed that right at this time, although not earlier, the assessee could have made a provision in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: " Whether, on the facts and in the circumstances of the case, the sum of Rs. 52,059 or any lesser sum was allowable as deduction being urban land tax paid during the year ? " The question of law as drafted by the Tribunal speaks of urban land tax paid during the year. This is to misunderstand the facts as well as the nature of issue to be decided in this case. For, as earlier mentioned, the assessee-family was having the financial year as its accounting year. The present reference relates to the assessment year 1970-71. Normally, the assessee's account year would be the period of twelve months from April 1, 1969, to March 31, 1970. That would be the account year for the assessment year 1970-71. The urban land tax demand for Rs. 52,059 was made on the assessee on December 18, 1969, and was paid subsequently. If the relevant accounting year is regarded as ending on March 31, 1970, then the demand of tax might be regarded as having been paid during the year. But, as earlier mentioned, the assessee-family had become dissolved even on July 7, 1969, long before the normal end of the account year. Therefore, there could be no question of the urban land tax having been " paid during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case must rather be decided on the basis of the method of accounting, and in accordance with the ruling rendered by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. In that event, according to learned counsel, there could not be any objection on principle to the assessee-family seeking to claim a deduction for urban land tax in the year in which the urban land tax liability was known for certain as an accrued liability, although it did not happen to be paid in that year. Learned counsel drew our attention particularly to the exigencies of the situation under which the claim had to be made by the assessee-family in the course of assessment proceedings concerning the accounting year relevant to the assessment year 1970-71. He pointed out that if the year of actual payment of tax were regarded as a criterion, there was no way by which the assessee-family could claim the deduction, for, the payment happened to be made after the family ceased to exist. Having heard the arguments addressed in the manner aforesaid by both the parties, it seems to us that the question has to be decided wholly in favour of the assessee both on facts and on principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itate against the allowance being granted. The principle would seem to be that it was enough if the system of accounts usually followed by the assessee was such as to allow a provision being made in this regard. The Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, had clearly held that even if an actual provision had not been made, the deduction has to be given as if the accounts contained such a provision. All that is required is a mercantile system of account which allows for accrued liabilities of a kind which accrues before actual payment. It is sometimes said by eminent judges torn by a spiritual conflict within themselves that equity and income-tax are strangers. But the principle decided by the Supreme Court in this case belies the saying, just like equity, income-tax treats as having done, what ought to have been done. Under the mercantile accounting system, provision must be made for accrued liability. If provision is, in fact, made, that is sufficient, and the amount provided for will be allowed as deduction. Even if provision is not made, still the claim for allowance will be granted on the principle decided by the Supreme Court, which, according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, can qualify for deduction under s. 24(1)(vii) irrespective of to which year the urban land tax relates. A Bench of this court held that the section would apply, irrespective of the year to which the urban land tax relates, and would render eligible for deduction any amount of urban land tax actually paid during the year. It may be observed that no question arose either in CIT v. M. Ct. Muthiah [1979] 118 ITR 104 (Mad) or, for that matter, in the subsequent decision in CIT v. Woodlands Hotel [1981] 128 ITR 603 (Mad), about the method of accounting regularly employed by the assessee and the right of the assessee to claim deduction by the simple expedient of making provision in the accounts for urban land tax liability as a known liability irrespective of a notice of demand being raised by the taxing authorities. Even otherwise, we feel that on the basis of the Supreme Court's decision in Asst. Commr. of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603, the assessee would be entitled to deduct the urban land tax liability if he were to make a provision for it in the year in which the liability became known to him and became certain, even without having t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 computation of their business income. It is but a very small next step to further hold that even in the absence of any actual provision being made in the assessee's accounts, a deduction would be permissible on the basis of the decision of the Supreme Court in Kedarnath lute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. We accordingly reject the contention of the learned counsel for the Department that the decision of this court in CIT v. Woodlands Hotel [1981] 128 ITR 603, would stand in the way of the assessee claiming deduction for urban land tax liability as on July 7, 1969, even before the actual demand for that amount was made by the urban land tax authorities. This takes us on to the other part of the decision of the Tribunal in this case which was to restrict the allowance of urban land tax proportionate to the extent of 27 grounds held by the family as on the date when the urban land tax liability may be held to have become certain on the basis of the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of any proceedings under s. 171 of the Act. It, follows, therefore, that for the purposes of the proceedings under the I.T. Act, relating to this assessee-family, those partial partitions must be ignored as having no effect in the family's tax assessments. On the basis that the assessee-family had remained joint, and not taking into account the partial partitions of portion of the urban land held by the family, it must be held that the family was in possession of the entirety of the lands of an extent of 154 grounds, in which event, the whole of the urban land tax liability in the sum of Rs. 52,059 must properly be regarded as the liability of the family and allowable as such. The same conclusion can be arrived at by pursuing another line of approach. The Supreme Court had characterised the urban land tax as a tax on land on the basis of market value. The charging provision in s. 5 of the Act, however, lays down that the tax shall be levied and collected from the owner of the urban land within the urban area. This only stands to reason because there must be some one to pay the tax although the tax can be characterised as a tax on land. Furthermore, the owner of an urban land ..... X X X X Extracts X X X X X X X X Extracts X X X X
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