1979 (2) TMI 43 - HC - Income Tax

Court rules sales tax liability not deductible in computing total income for 1972-73 assessment year. Decision aligns with past cases.

The court held that the sales tax liability of Rs. 16,220 was not deductible in computing the total income for the assessment year 1972-73. The liability ... Sales Tax Issues:- Whether the sales tax liability of Rs. 16,220 is deductible in computing the total income for the assessment year 1972-73Rs.Analysis:The judgment addressed the issue of whether the sales tax liability of Rs. 16,220 was an admissible deduction for the assessment year 1972-73. The assessee, an individual selling appalams, argued that since the appalams were manufactured and sent to various depots for sale, there were no sales from the manufacturing unit, and thus, sales tax was not leviable. However, the sales tax department levied sales tax for specific years. The matter went through various assessments and appeals, resulting in a refund received for a previous year. The assessee claimed the total amount of two demands as a deduction for the relevant assessment year. The Income-tax Appellate Tribunal held that the liability to pay sales tax arose when the demand was raised, justifying the deduction for the year under consideration.The judgment referred to the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT, emphasizing that an assessee following the mercantile system of accounting can deduct liabilities accrued during the period for which profits were computed, even if the liability was to be discharged at a future date. The Supreme Court highlighted that the existence or absence of entries in the books of account does not determine the entitlement to a deduction. The judgment also discussed the CIT v. Nathmal Tolaram case, where a demand for sales tax made in a particular year was considered a condition precedent for liability. However, the court disagreed with this view, stating that the liability typically relates to the year in which the transactions occurred or the year of payment, not the year of receipt of a demand notice.Ultimately, the court ruled against the assessee, stating that the deduction for sales tax liability could only be allowed in the year of accrual of liability or the year of payment, not in the year of receiving a disputed demand notice. The judgment answered the question in the negative, favoring the revenue, with no order as to costs.