Sales tax deduction on accrual allowed where liability crystallised through assessment in the relevant year.

Sales tax liability was deductible in the assessment year when the assessment order was passed and the liability crystallised, even though an earlier court order existed. Because the assessee maintained mercantile accounts and the liability was reflected in the books and profit and loss account for that year, the statutory liability accrued on the binding assessment and became allowable as a deduction. The deduction was therefore upheld for the relevant year in favour of the assessee and against the Revenue.

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Issues: Whether the sales tax liability of Rs. 45,547 was allowable as a deduction in the assessment year 1978-79 when the demand was raised on the basis of the sales tax assessment order passed during that year.

Analysis: The assessee maintained accounts on the mercantile system. Although the High Court's earlier order was passed in October 1974, the Sales Tax Officer completed the assessment during the relevant assessment year and the resulting liability was reflected in the accounts and claimed in the profit and loss account for that year. On these facts, the liability had crystallised in the year of assessment. The principle applied was that a statutory liability becomes deductible when it accrues on the basis of a binding assessment, even if the underlying dispute had earlier been decided differently.

Conclusion: The sales tax liability was rightly allowed as a deduction in the assessment year 1978-79, and the question was answered in the affirmative, in favour of the assessee and against the Revenue.

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