COMMISSIONER OF INCOME-TAX VS NEW GUJARAT COTTON MILLS LTD.
1999 P T D 3680
[230 I T R 595]
[Calcutta High Court (India)]
Before Vinod Kumar Gupta and Dipak Prakas Kundu, JJ
COMMISSIONER OF INCOME-TAX
Versus
NEW GUJARAT COTTON MILLS LTD.
Income-tax Reference No. 118 of 1991, decided on 26/11/1997.
Income-tax---
----Business expenditure---Mercantile system of accounting---Liability to additional sales tax for assessment years 1961-62 to 1965-66 and 1;975-76-- Assessment proceeding for sales tax completed and liability to sales tax determined and paid only during assessment year 1978-79---Liability could not be anticipated earlier---Deduction allowable in assessment year 1978-79:
In a case where the assessee maintains the mercantile system of accounting, the liability to pay sales tax accrues the moment .the sale or purchase transaction is completed: Whether the sales tax is actually paid or not, the liability always remains and it has to be duly reflected in the books of account maintained by the assessee for this purpose.
The assessee claimed deduction of sales tax liability relating to the assessment years 1961-62 to 1965-66 and 1975-76 amounting to Rs.89,683 and Rs.1,69,678, respectively in the assessment year 1978-79. The Income- tax Officer disallowed the claim for deduction on the ground that the liability related to earlier years and did not accrue in the assessment year 1978-79 and also that no provision had been made therefor. The Commissioner (Appeals; allowed the claim for deduction. The Tribunal upheld the order of the Commissioner (Appeals). On a reference
Held, affirming the decision of the Tribunal, that then liability was pot normal liability of paying sales tax The assessment proceeding for the sales tax had been completed only at a point of time during the period covered by the assessment year 1978-79 and it was only at that time that tile assessee had been intimated about the liability to pay additional sales tax. 'This was not a case of liability to pay normal sales tax which had been paid by the assessee where the liability actually bad arisen in the years relevant to the assessment years 1975-76 and 1961-62 to 1965-66 Therefore, the Tribunal was correct in holding that the assessee was entitled to claim deduction since the amount had been paid only during the year relevant to the assessment year 1978-79 and the liability could not have been anticipated at airy point of time prior to that.
A. C. Moitra for the Commissioner.
Nemo for the Assessee.
JUDGMENT
VINOD KUMAR GUPTA, J.---The following question of law has, been referred for our opinion:
"Whether, on the facts and in the circumstances of the case and on a correct interpretation of the relevant provisions of law, the Tribunal was justified in holding that sales tax liability amounting to Rs.2,59,361 accrued during the previous year relevant to the assessment year 1978-79 and in that view sustaining the order of the Commissioner of Income-tax (Appeals) allowing the assessee's claim for the said deduction?"
The assessee is a limited company and derives income from textiles. The point in dispute is with regard to deduction of Rs.2,59,361 under the heading "Sales tax". The assessee claimed the aforesaid deduction for the assessment year 1975-76 and for the assessment years 1961-62 to 1965-66 as per the details hereinbelow:
| | | Rs. |
| (1) | Liability for the assessment year 1975-76 | 1,69,678 |
| (2) | Liability for the assessment years 1961-62 to 1965-66 | 89,683 |
The Income-tax Officer did not allow the deduction in respect of the aforesaid liabilities on the ground that they related to earlier year and did not accrue in the assessment year under reference. Since the assessee had not made any provision therefor, it was not entitled to deduction, so was the reasoning of the Income-tax Officer. The Commissioner of Income-tax (Appeals) agreed with the assessee and allowed the liabilities. The Tribunal upheld the findings of the Commissioner of Income-tax (Appeals).
In a case where the assessee maintains mercantile system of accounting undoubtedly the liability to pay sales tax accrued the moment the sale or purchase transaction is completed. Whether the sales tax is actually paid or not, the liability always remains and it has to be duly reflected in the books of account maintained by the assessee for this purpose. That is always in normal circumstances.
In the present case, however, the liability mentioned above was not the normal liability of paying sales tax. In this case the assessment proceeding for the sales tax had been completed only at a point of time during the period covered by the assessment year 1978-79 and it was only at this time that the assessee had been intimated about the liability to pay additional sales tax. This was not a case of liability to pay normal sales tax, which undoubtedly had been paid by the assessee where the liability actually had arisen in the years relevant to the assessment years 1975-76 and 1961-62 to 1965-66.
We feel that the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal is correct because the assessee was entitled to claim deduction since the amount had been paid only during the year relevant to the assessment year 1978-79 and the liability could not have been anticipated at any point of time prior to this.
We accordingly answer the question in the affirmative and in favour of the assessee.
DIPAK PRAKASH KUNDU, J.---I agree.
M.B.A. /3163/FCReference answered.