Set-off counts as prior tax payment for the 20 per cent test, so penalty was not attracted.

The expression "sum already paid" under section 36(3A) was construed broadly to include lawful set-off under Rule 41, because such set-off reduces or extinguishes the assessee's tax liability before assessment and functions as a form of prior payment. On that footing, the set-off amount had to be counted when applying the 20 per cent test for determining whether penalty was attracted. The result was that the penalty under section 36(3A) was not attracted.

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Issues: Whether the amount of set-off available under Rule 41 of the Bombay Sales Tax Rules, 1959 can be treated as payment of tax already made prior to assessment for the purpose of applying the 20 per cent test under section 36(3A) of the Bombay Sales Tax Act, 1959.

Analysis: Section 36(3A) was construed in the context of its scheme, which distinguishes the first two categories of payment under section 38 from the third category referring to the sum already paid prior to assessment. The expression "sum already paid" was held not to be confined only to cash remittances into the Government treasury. Since set-off under Rule 41 is available only in respect of tax already borne and operates to reduce or extinguish the assessee's liability, it functions as a form of payment for purposes of the statutory test. The amount allowed as set-off therefore had to be taken into account while determining whether the assessed tax exceeded the amount already paid by more than 20 per cent.

Conclusion: The set-off under Rule 41 was rightly treated as payment already made prior to assessment, and the penalty under section 36(3A) was not attracted.

Ratio Decidendi: For the purpose of section 36(3A), "sum already paid" includes any amount that, by way of lawful set-off, reduces or discharges the assessee's tax liability before assessment.

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