2003 (1) TMI 16 - HC - Income Tax

Dispute over purchase tax liability cessation for 1987-88 assessment year

The case involved a dispute over the cessation of liability in respect of provision for purchase tax liability for the assessment year 1987-88. The ... Provision for purchase tax liability – Remission of liability – Assessing Officer has assumed that there is cessation of liability - 'Whether, Tribunal is right in upholding the decision of the CIT (Appeals) deleting the sum of Rs. 9,11,380 deemed as profit u/s 41(1) for the assessment year 1987-88?' - department did not adduce any evidence to show that the sales tax assessment has been completed granting exemption to the assessee from payment of purchase tax. However, we give one more opportunity to the Department to produce evidence, if any, available to show that the purchase tax liability of the assessee has been determined by completing the sales tax assessment during the previous year relevant to the AY 1987-88 Issues:1. Interpretation of section 41(1) of the Income-tax Act for the assessment year 1987-88.2. Cessation of liability in respect of provision for purchase tax liability.3. Burden of proof on the Revenue to establish cessation of liability.4. Impact of the decision in Sterling Foods' case on purchase tax liability.5. Requirement of completion of sales tax assessment for cessation of purchase tax liability.6. Assessment pending status and evidence required for determining purchase tax liability.7. Tribunal's authority to remit the matter for producing evidence.Issue 1: Interpretation of section 41(1) of the Income-tax Act for the assessment year 1987-88The case involved a question of law regarding the Tribunal's decision to uphold the deletion of a sum deemed as profit under section 41(1) of the Income-tax Act for the assessment year 1987-88. The Assessing Officer had brought to tax a sum based on the provision for purchase tax liability, which was disputed by the assessee and led to an appeal.Issue 2: Cessation of liability in respect of provision for purchase tax liabilityThe Assessing Officer contended that there was a cessation of liability in respect of the provision for purchase tax liability, amounting to Rs. 9,11,380, during the relevant previous year. This cessation was based on the decision of the Supreme Court in Sterling Foods' case, which linked the goods purchased and goods exported as the same commodity.Issue 3: Burden of proof on the Revenue to establish cessation of liabilityThe Revenue argued that the burden was wrongly placed on them by the Tribunal to establish the cessation of liability. They contended that the provision for purchase tax liability represented a deduction allowed in earlier assessment years and the cessation was a result of the Supreme Court decision.Issue 4: Impact of the decision in Sterling Foods' case on purchase tax liabilityThe Supreme Court's decision in Sterling Foods' case was crucial in determining the identity of goods purchased and exported. The case established that raw prawns purchased and processed prawns exported were substantially the same commodity, impacting the tax liability of the assessee.Issue 5: Requirement of completion of sales tax assessment for cessation of purchase tax liabilityThe Tribunal highlighted that the assessment under the Sales Tax Act needed to be completed to determine the cessation of purchase tax liability. The Tribunal emphasized that the sales tax assessment status was pivotal in deciding the liability under section 41(1) of the Income-tax Act.Issue 6: Assessment pending status and evidence required for determining purchase tax liabilityThe Tribunal considered the pending status of the assessment and the lack of evidence provided by the Department regarding the completion of the sales tax assessment. The Tribunal ruled that without evidence of the sales tax assessment determining the purchase tax liability, it could not be concluded that there was a cessation of liability.Issue 7: Tribunal's authority to remit the matter for producing evidenceThe Tribunal directed the Department to produce evidence showing the completion of the sales tax assessment determining the purchase tax liability. Failure to provide such evidence would result in the Tribunal passing appropriate orders, including restoration of the original order. The Tribunal was granted the authority to remit the matter for further evidence production and decision-making.In conclusion, the judgment emphasized the importance of completing the sales tax assessment to establish the cessation of purchase tax liability and highlighted the need for evidence to support such determinations. The Tribunal was directed to reconsider the matter based on the evidence provided by the Department within a specified timeframe.