1985 (11) TMI 27 - HC - Income Tax

Supreme Court Upholds Firm's Tax Deduction Rights Under Punjab Sales Tax Act

The Supreme Court dismissed the special leave petition on March 25, 1971, rejecting a partnership firm's claim for exemption under section 5(2)(a)(vi) of ... Business Expenditure Issues:1. Claim for exemption under section 5(2)(a)(vi) of the Punjab General Sales Tax Act, 1948.2. Disallowance of deductions claimed by the assessee for purchase tax liability.3. Question of deduction of purchase tax liability in subsequent accounting years.4. Interpretation of the system of accounting followed by the assessee.5. Applicability of previous court decisions on the system of accounting.Analysis:1. The judgment dealt with the case of a partnership firm engaged in the purchase and sale of rice and paddy, which claimed exemption under section 5(2)(a)(vi) of the Punjab General Sales Tax Act, 1948. The firm's claim for exemption was rejected, leading to an assessment of purchase tax payable. Various appeals were filed by the firm, but ultimately the Supreme Court dismissed the special leave petition on March 25, 1971.2. The assessee deposited certain amounts towards purchase tax liabilities in different years, but the deductions claimed by the assessee were initially disallowed by the assessing authority. However, the Appellate Assistant Commissioner reversed the order disallowing deductions. The Revenue further approached the Tribunal, but their appeal was unsuccessful.3. The issue of deduction of purchase tax liability in subsequent accounting years was raised. The Tribunal allowed the deduction in the assessment year 1971-72, but the court found that the assessee was not entitled to claim the deduction of Rs. 1,11,453.42 in that year as the liability had been paid in the accounting year relating to the said assessment year.4. The judgment also addressed the interpretation of the system of accounting followed by the assessee. The Revenue contended that the assessee was following a mercantile system of accounting and could not unilaterally change the system. However, the court disagreed, stating that the assessee had the right to adopt different systems of accounting depending on the situation, as long as it was consistently followed.5. The court referred to previous decisions to support its interpretation of the system of accounting. It highlighted that the method of accounting should be determined based on the substance of the situation and the right of the trader to adopt different accounting systems. The court overruled the Revenue's contention and upheld the right of the assessee to choose the appropriate accounting method.In conclusion, the judgment addressed various issues related to the claim for exemption under the Punjab General Sales Tax Act, the deduction of purchase tax liabilities, the interpretation of the system of accounting, and the applicability of previous court decisions on accounting methods. The court provided a detailed analysis of each issue and ruled in favor of the assessee on some aspects while deciding in favor of the Revenue on others.