COMMISSIONER OF INCOME-TAX VS ASSAM ROLLER FLOUR MILLS
1999 P T D 2144
[226 I T R 876]
[Rajasthan High Court (India)]
Before V. K. Singhal and M. A. A. Khan, JJ
COMMISSIONER OF INCOME-TAX
Versus
ASSAM ROLLER FLOUR MILLS
D. B. Income-tax References Nos. 14 and 15 of 1984, decided on 08/05/1996.
Income-tax---
----Business expenditure---Sales tax---Mercantile system of accounting-- Assessee dealing in manufacture and sale of Maida and Suji---Board of Revenue holding that no sales tax liability on turnover of Maida and Suji-- Assessee collecting sales tax and keeping it in separate account---Amount not debited in profit and loss account---Liability neither admitted in return nor ascertained---Amount not paid to Sales Tax Department nor demand created- Mere apprehension of assessee that sales tax liability would be created-- Sales tax liability not allowable deduction---Indian Income Tax Act, 1961, S.37.
The assessee, which dealt in manufacture and sale of Maida and Suji, collected sales tax and kept it in a separate account. The assessee claimed deduction of the sales tax liability for the assessment years 1976-77 and 1977-78. The Board of Revenue had held that there was no liability of sales tax on the sale of Maida and Suji in the case of the assessee, on the basis of the decision in Vishnu Agencies P. Ltd. v. CTO (1978) 42 STC 31. The Income-tax Officer held that there was no sales tax liability on the sale of Maida and Suji. The Tribunal, however, allowed deduction of sales tax liability taking into consideration the facts for the assessment year 1975-76. On a reference, the Revenue contended that in the assessment year 1975-76, the assessee had collected deposits towards sales tax liability, kept them in a separate account and claimed deduction on account of the liability which had neither been admitted in the return nor was ascertained, that no document was produced by the assessee before any of the authorities or even before the High Court by which it could be said that there was a liability to sales tax, that the assessee had not paid the said amount to the Sales Tax Department till date nor had any such demand been created and that since the Board of Revenue had already decided the matter in favour of the assessee that there was no liability of sales tax on the turnover of Maida and Suji, the statutory liability could not be inferred:
Held, (i) that no sales tax liability was incurred by the assessee on the turnover and it was only the apprehension of the assessee that such a liability would be created which had not in fact till date been created or admitted or paid;
(ii) that the Tribunal had relied upon the order passed by it in respect of the assessment year 1975-76 which had already been reversed by the High Court and, therefore, the Tribunal was not justified in holding that the sales tax liability was an allowable deduction.
C.I.T. v. Assam Roller and Flour Mills (1994) 209 ITR 835 (Raj.) fol.
C.I.T. v. Assam Roller Flour Mills (1987) 163 ITR 186 (Raj.) and Vishnu Agencies (P.) Ltd. v. C.T.O. (1978) 42 STC 31 (SC) ref.
G. S. Bapna for the Commissioner:
V. Bhojwani and Sunil Bhojwani for the Assessee.
JUDGMENT
The assessee has claimed deduction of Rs.1,50,590 for the assessment year 1976-77 and Rs.49,661 for the assessment year 1977-78 as liability towards sales tax. The assessee deals in manufacture and sale of maida and suji on the sale of which the tax liability was claimed. The facts of these two years are stated to be similar to those of 1975-76 where the additions were deleted by the Income-tax Appellate Tribunal. The Board of Revenue which was the final fact finding authority has held that there is no liability of tax on the sale of maida and suji in the case of the assessee. The claim was based on a later decision of the apex Court in the case of Vishnu Agencies (Pvt.) Ltd. v. CTO (1978) 42 STC 31 and the Income-tax Officer was of supply of cement is not applicable for sale of maida and suji, etc. (sic). It was also found that in the return submitted the turnover was not disclosed as taxable in sales tax law. There was no order passed by the Assessing Authority under the sales tax law which has fixed the liability of the assessee. Taking into consideration the facts of 1975-76, the Tribunal has allowed deduction,
Learned counsel for the Revenue has stated that in the year 1975-76, the assessee has collected deposits towards sales tax liability keeping it in a separate account and claimed deduction on account of alleged liability which has neither been admitted in the return nor was ascertained. It is stated that no document was produced by the assessee before any of the Authorities or even before this Court by which it could be said that there is a liability of sales tax. The assessee has not paid the said amount to the Sales Tax Department till date nor any such demand has been created. Since the Board of Revenue has already decided the matter in favour of the assessee that there is no liability of sales tax on the turnover of maida and suji, the statutory liability could not be inferred.
Learned counsel for the assessee has submitted that now the apex Court has held that the sale of maida and suji is liable to tax and on the basis of which the Department may create the demand. Learned counsel for the Revenue has stated that firstly the demand now cannot be created because it is barred by limitation and even if it is created the assessee would be entitled to claim the demand on the basis of creation-of demand and depositing the same with the Sales Tax Department.
It may also be observed that the question which has now been framed by the Tribunal is not factually correct because no sales tax liability was incurred by the assessee on the turnover and it was only the apprehension of the assessee that such a liability would be created which has not in fact till date been created or admitted or paid.
On the application of the Revenue, the following question has been referred:
"Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that sales tax liability incurred by the assessee on turnover was allowable?"
Learned counsel for the assessee has submitted that the firm, Assam Roller Flour Mills, Jaipur, succeeded to the business of Assam Rollers on February 1, 1982, and a sum of Rs.49,660 for the period from September 8, 1976 to March 31, 1977, was deposited towards sales tax. In the affidavit submitted it is stated that neither any sales tax has been charged nor collected nor any amount by way of sales tax or otherwise has been accepted nor any deposit in relation to sales tax during the assessment years 1976-77 and 1977-78 was accepted. The assessee is maintaining the accounts on the basis of mercantile system and it is on that basis that this liability has been created. The Income-tax Officer has found in his order dated July 9, 1979, for the assessment year 1976-77 that, the firm has claimed deduction of Rs.1,50,590 in respect of sales tax. This amount was not debited in the profit and loss account or in the books of account nor is charged from the customers. It was on the basis that there was no statutory liability to pay the sales tax that the claim was disallowed. In respect of the assessment year 1977-78 it was observed that since the assessee has not accepted the liability and the Board of Revenue has already given the decision in favour of the assessee, therefore, there being no statutory liability to pay the sales tax and the payment has also not been made during the year under consideration, the amount of Rs.49,669 is not liable to be allowed as deduction.
Learned counsel for the assessee has relied on the decision given by this Court in the case of CIT v. Assam Roller Flour Mills (1987) 163 ITR 186 D.B. Income-tax Reference No. 342 of 1980, decided on August 20, 1985. That reference is on an altogether different matter as the question therein was different.
Here, it is not the contention of the Revenue that any double relief has been given or not. The basic point which has been raised is as to whether the assessee is entitled to claim the deduction of sales tax which has neither been admitted nor was payable or paid. In this regard the provisions of section 37 of the Income-tax Act are relevant. Any expenditure (not being the expenditure of the nature described under sections 30 -to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose of business or profession is allowable as deduction.
This matter was considered in respect of the assessment year 1975-76 in D.B. Income-tax Reference No. 122 of 1981 decided on October 28, 1993 CIT v. Assam Roller and Flour Mills (1994) 209 ITR 835, wherein it was observed that in accordance with the provisions of section 37, it is only that expenditure which is laid out or expended wholly or exclusively for the purpose of business which can be allowed. The amount which has been collected by the assessee was on account of the business which was carried on and is a trading/business receipt and, therefore, is the income of the assessee. Simply because the amount has been credited in a separate account, it would not change the character of the initial collection. The amount after collection has neither been refunded to the customers nor has been paid to the Government and it could not be considered that there was any crystalized liability or ascertained liability which could even be allowed on the ground of maintenance of books of account on the mercantile system. The reference was accordingly decided against the assessee. Following the said decision, we are of the opinion that since no document has been produced before us, from which it could be said that the liability of sales tax was ascertained or even admitted by the assessee during the years in dispute it is not entitled to the deduction claimed. According to the assessee even in the return which was submitted before the sales tax authority, no liability in respect of the sales tax has been admitted and the Board of Revenue at that time had decided the matter in favour of the assessee with regard to the taxability of the item. If because of any subsequent order the liability arises then it will be at that time the matter could be considered. The Tribunal has relied upon the order passed by it in respect of the assessment year 1975-76 which has already been reversed by this. Court on October 28, 1993 (see (1994) 209 ITR 835) and, therefore, we are of the opinion that the Tribunal was not justified in holding that the sales tax liability incurred by the assessee on turnover was allowable.
The reference is accordingly answered in favour of the Revenue and against the assessee.
M.B.A./1971/FC Order accordingly.