Deeming registration on business lease extends to outstanding sales tax dues and supports deduction for compulsory payment as business expenditure.

Section 17 of the Bengal Finance (Sales Tax) Act, 1941, created a deeming fiction on transfer of business by lease by treating the lessee as registered for all purposes of the Sales Tax Act, except liabilities already discharged, and this extended to the transferor's outstanding sales tax dues. The lease deed also required the lessee to pay taxes payable by the lessor as reflected in the books. Because the assessee was under both a statutory and contractual obligation to meet those demands, the payment was treated as business expenditure and allowed as a deduction under section 37 of the Income-tax Act, 1961.

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Issues: Whether the assessee, as lessee and transferee of the business, was under a statutory obligation under section 17 of the Bengal Finance (Sales Tax) Act, 1941, read with the lease deed, to pay the lessor's outstanding sales tax liabilities for earlier years, and whether such payment was deductible under section 37 of the Income-tax Act, 1961.

Analysis: Section 17 created a legal fiction by which, on transfer of the business by lease, the lessee was deemed to be and to have always been registered for all purposes of the Sales Tax Act, except liabilities already discharged. The provision was not confined to current liabilities and extended to outstanding sales tax dues of the transferor. The lease deed also obliged the lessee to pay taxes payable by the lessor as per books. Since the assessee was statutorily and contractually liable to discharge the sales tax demands, the payment was an expenditure incurred in the course of business and fell within section 37.

Conclusion: The assessee was liable to pay the outstanding sales tax liabilities of the lessor, and the amount paid was allowable as a deduction under section 37 of the Income-tax Act, 1961.

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