COMMISSIONER OF INCOME TAX vs NEW GUJARAT COTTON MILLS LTD.

Vinod Kumar Gupta

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 (Appeals) allowing the assessee''s claim for the said deduction ?"

2.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

3.The Income Tax Officer did not allow the deduction in respect of the aforesaid liabilities on the ground that they related to earlier years and did not accrue in the assessment year under reference. Since the assessee had not made any provision, therefore, it was not entitled to deduction, so was the reasoning of the Income Tax Officer. The Commissioner of (Appeals) agreed with the assessee and allowed the liabilities. The Tribunal upheld the findings of the Commissioner (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 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 (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.