Indian Express (Madurai) Pvt. Ltd. vs Commissioner of Income Tax Commissioner of Income Tax Vs Indian Express (Madurai) Pvt. Ltd.

N.V. Balasubramanian, J.—These combined references are at the instance of the assessee and the Department.

Tax Case No. 948 of 1985 is at the instance of the assessee. Tax Case No. 949 of 1985, is at the instance of the Department.

The question of law referred to us by the assessee is as follows :

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has rightly held that the disallowance u/s 40A(8)

has to be made on the interest paid by the assessee-company without deducting the interest received by it?

The question of law referred to us at the instance of the Department is as follows :

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal has rightly held that the liability in respect of sales

tax collection which was not paid to the Government for want of final decision of the sales tax proceedings pending before the Supreme Court, is

allowable as a deduction and hence the assessee was entitled to claim deduction of an equivalent amount collected as sales tax ?

The assessment year is common for both the references viz., 1979-80.

In so far as the question of law raised at the instance of the assessee is concerned, it relates to the interpretation of Section 40A(8) of the

Income- tax Act, 1961. This court in the case of Andhra Prabha (P.) Ltd. Vs. Commissioner of Income Tax, , has taken a view that ""expenditure

u/s 40A(8) does hot refer to net expenditure after setting off of interest income of the assessee. In other words, an assessee is not entitled to refer

to the net expenditure after setting off of the interest income.

Following the said decision of this court in Andhra Prabha (P.) Ltd. Vs. Commissioner of Income Tax, , we answer the question of law referred

to us at the instance of the assessee, in the affirmative and against the assessee.

In so far as the question of law referred to us at the instance of the Department is concerned, it relates to the claim of the assessee for the

deduction of sales-tax liability. There is no dispute that the system of accounting'' maintained by the assessee during the previous years relevant for

the assessment year 1979-80 is the mercantile system of accounting and the assessee collected a sum of Rs. 20,555 and the Income Tax Officer

brought to tax the said sum of Rs. 20,555. The view of the Income Tax Officer was affirmed by the Commissioner of Income Tax (Appeals). But

the Tribunal has found that, since the system of accounting adopted by the assessee was the mercantile system of accounting, the assessee was

entitled to treat it as a liability due to the Government.

The Revenue has challenged the order of the Appellate Tribunal and the question of law set out earlier has been referred to us at the instance of

the Department. At the time of hearing of the tax case under reference, Mr. T. N. Seetharaman, learned counsel for the assessee, brought to our

notice a decision of the apex court rendered in the assessee''s own case under the provisions of the Tamil Nadu General Sales Tax Act, 1959, in

Civil Appeal No. 1633(NT) of 1974 dated April 2, 1986 (Indian Express (P.) Ltd. v. State of Tamil Nadu [1987] 67 STC 474, wherein the

Supreme Court held that the turnover on the sale of surplus copies of the newspaper by the assessee as waste paper was liable to sales tax under

the Tamil Nadu General Sales Tax Act was proper and legal. In view of the decision of the Supreme Court, it is clear that there is a real liability on

the assessee on the sale of surplus copies of the newspaper and the assessee was entitled to claim the sales tax liability as a deductible item in the

computation of income of the assessment year. Since the apex court has decided the matter against the assessee in the sales tax proceedings and

there is a present and certain liability, the sales-tax to be paid to the Government should be treated as a liability for deduction, more particularly in

view of the system of accounting maintained by the assessee though the corresponding amount collected by way of sales tax was brought to tax.

Accordingly, we answer the question of law referred to us at the instance of the Revenue in the affirmative and against the Department. In the

circumstances of the case, there will be no order as to costs.