Compounding eligibility under trade tax law depends on clearing earlier-year default before rejection of the later-year application.

Compounding under Section 7D of the U.P. Trade Tax Act, 1948 was treated as an alternative assessment mechanism available only if the statutory conditions in the scheme were satisfied. Each assessment year was regarded as a separate unit, so eligibility for compounding for a later year depended on the assessee not being in default in respect of the earlier year's compounding fee with interest. Because the default continued on the date the later year's application was rejected, the subsequent curing of that default did not revive eligibility for that assessment year. The assessee was therefore not entitled to compounding for the later year, and the question of law was answered against the assessee and in favour of the Revenue.

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Issues: Whether subsequent clearance of default relating to compounding fee for an earlier assessment year entitled the assessee to compounding for the later assessment year despite the subsisting default on the date of rejection of the later year's application.

Analysis: The compounding facility under Section 7D of the U.P. Trade Tax Act, 1948 was treated as an alternative mode of assessment governed by the conditions imposed in the scheme. Each assessment year was held to be a separate unit, and eligibility for compounding for the later year depended on satisfaction of the stipulated condition that the assessee should not remain in default in respect of the earlier year's compounding fee with interest. Since the default continued on the date the application for the later year was rejected, the later curing of the earlier default did not alter the position for that assessment year.

Conclusion: The assessee was not entitled to compounding for the later assessment year, and the answer to the question of law was against the assessee and in favour of the Revenue.

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