TMI Blog1994 (4) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... tgarh, in the year 1979. The DFO charged sales-tax @ 25% and surcharge @ 2.5%. The rate of sales tax was earlier 10% on the amount of royalty payable by the assessee. The rate was enhanced by the amendment of the relevant sales-tax law w.e.f. 1-2-1979. The assessee filed a writ petition before the High Court but that was dismissed on 23-4-1980. The assessee went before the Supreme Court in the month of June 1980 and a stay order was obtained on 18-6-1980. However, the stay was vacated by the apex court, though Special Leave Petition was granted by order dated 18-11-1982. The assessee, therefore, contended before the Assessing Officer that he was entitled to claim deduction for the payment of the amount of sales-tax and surcharge at the enha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and was published in the Official Gazette on 16-6-1979. Since it was a retrospective amendment to come into effect from 1-2-1979, the assessee challenged the amending law before the High Court and, thereafter, before the Supreme Court. The ld. counsel has, therefore, argued that the demand was under dispute and, therefore, the assessee was not required to make payment before the question of law was settled finally by the Supreme Court. Our attention has been drawn to the letter sent by the DFO wherein the demand is said to have been 'created'. Copies of DFO's letter dated 1-11-1985 and 20-11-1986 have been placed before us and our attention has been drawn to the fact that since the DFO created demand in this year, it was legitimate for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty at the rate of 15% per annum for the period of belated payment of sales-tax from the due date." On the basis of the said clause, it is clear that the assessee was to pay sales-tax at 10% or at such other rate as may be levied by the Excise and Taxation Department. Therefore, it was inherent in the agreement that the liability may arise so far as the rate of sales-tax is concerned. Since the rate of sales-tax was enhanced by virtue of an amendment of the relevant law, and not by any executive action of the DFO, it cannot be accepted that it was a demand created by the DFO by his letter sent to the assessee in the year 1986. The ld. D.R. has pointed out that the word 'created' was mistakenly used by the DFO and the actual effect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. That was a case where the assessee was following the mercantile system of accounting and had incurred a liability on account of sales-tax determined to be payable on the sales made by it. The sales-tax demand had been raised pending income-tax assessment in that case. It was held that the assessee was entitled to deduct from the profits and gains of the business, liability to sales tax which arose on the sales made by it during the relevant year. The liability did not cease to be a liability because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Suneeta Laboratories Ltd. v. CIT [1986] 162 ITR 883. That was a case where certain payment of salary to the godown-keeper and watchman had been made and the assessee had to bear the expenditure for such payment which was actually paid by the bank but was recoverable from the assessee. It was held that the salary paid for several years by the bank was debited to the cash credit account of the assessee in the accounting year and the assessee was entitled to deduction of the entire amount recoverable by the bank in that year. We again find that the decision rests on the question of creation of demand. Since the bank did create a demand for earlier years, the assessee could not be said to have knowledge of the liability earlier. Our atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, deduction could not be allowed in subsequent year. Reliance has also been placed by the ld. ITO on a decision of the Allahabad High Court in the case of CIT v. Brijmohan Das Laxman Das [1979] 117 ITR 121. It was held that the expenditure must be debited in the year in which the liability accrued. Similar view was taken by the Calcutta High Court in the case of CIT v. Ashoka Cement Ltd. [1979] 117 ITR 709. It was held in that case that the liability towards payment of sales-tax arises the moment it is paid. The liability is to be allowed as deduction in the year in which it arises, though paid later. The Punjab and Haryana High Court in the case of CIT v. Aggarwal Rice General Mills [1989] 180 ITR 29 has also upheld the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
