Commissioner of Income Tax vs Kundan Sugar Mills Co. Ltd.

At the instance of the revenue, the following questions have been referred for opinion of this court u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'') by the Delhi Bench ''B''.

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing deduction of the additional sales tax liability of Rs. 2,58,032 as per the sales tax order dated 12-3-1962 even though the assessee-firm stood dissolved on 13-12-1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing deduction for bonus liability of Rs. 1,35,373 which accrued under the order of the Uttar Pradesh Government dated 1-5-1962 even though the assessee-firm stood dissolved on 13-12-1961 ?''

None appears for the assessed despite notice. We have heard the learned counsel for the revenue.

The Tribunal''s finding so far as the first question is concerned is as follows :

"Next contention is about the disallowance of sales tax of Rs. 3,74,459, Shri Agarwal invited attention to details of this liability at page 6 of his paper book. He confined his claim only in respect of two sales tax assessments made for the assessment year 1957-58 on 12-3-1962, he filed copies of sales tax orders one under rule 41(5) and the other under rule 51(5) read with section 9(3) of the Central Sales Tax Act both dated 11-3-1962, he pointed out that as per the order under rule 51(9), an additional demand of Rs. 66,964 was raised and by the second order an additional demand of Rs. 1,91,068 was similarly raised. In view of this, he reduced the claim made in this statement under the first order to Rs. 66,964 as against Rs. 1,66,751 included in the amount of Rs. 3,74,459. Thus, he submitted that he was contending for a total amount of Rs. 66,964 plus Rs. 1,91,068 totaling to Rs. 2,58,032. He contended that the additional sales tax liability relating to the business of the assessed in earlier years raised in this accounting year was allowable as business expenditure. On behalf of the department, it was submitted that while accepting the assessor�s claim the Income Tax Officer may be given an opportunity to verify the amounts allowable".

As regards the second question, conclusions of the Tribunal are as under :

"The last contention pertains to the disallowance of bonus of Rs. 1,35,373, the liability for payment of which was admittedly settled after a dispute by the orders of the Uttar Pradesh Government (Labour Department) dated 1-5-1962 as referred to by the Appellate Assistant Commissioner in para 10 of his order. The Appellate Assistant Commissioner has disallowed this claim on the ground that the date of order fell after the date of dissolution of the partnership and the liabilities unit wise had been taken by the erstwhile partners with effect from 13-12-1961, i.e., the date of dissolution of the partnership. We have already decided this issue in assessor�s favor so far as it relates to the assessment year 1963-64. The bonus liability related to the season 1960-61 and it was not a liability for a period after the date of dissolution of the partnership and taking over of the liabilities unit wise by the erstwhile partners. No case has been made out by the Appellate Assistant Commissioner that the liabilities of the pre-dissolution business were to be taken over unit wise by the partners taking over such units. Like the other items of expenditure held to be admissible buy us above, the amount of bonus of Rs 1,33,373 is an admissible deduction as business expenditure. The liability under the mercantile system of accounting followed by the assessee-firm had accrued, undisputedly under the Uttar Pradesh Government (Labour Department) order dated 1-5-1962. Accordingly, we allow this contention."

Issue similar to one involved in the first question has come up for consideration of various High Courts and the Apex Court. In view of the decision of the Apex Court in The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, the question has to be answered in favor of the revenue and against the assessee. Accordingly, we answer the first question in the negative.

So far as the second question is concerned, the decisions in Commissioner of Income Tax, Madhya Pradesh, Nagpur and Bhandara Vs. Swadeshi Cotton and Flour Mills Private Ltd., and Laxmi Devi Sugar Mills Vs. Commissioner of Income Tax, U.P., are squarely applicable. The question has to be answered in favor of the assessed and against the revenue by answering it in the affirmative.

Reference is, accordingly, answered.