1994 (4) TMI 100 - AT - Income Tax

Tribunal denies deduction claim based on retrospective law effect for sales tax and surcharge.

The Tribunal rejected the assessee's claim for deduction of sales-tax and surcharge paid at an enhanced rate for the assessment year 1983-84. It held that ... Assessment Year, Mercantile System, Sales Tax, Supreme Court, Writ Petition Issues:1. Whether the deduction for sales-tax and surcharge paid by the assessee at an enhanced rate is allowable for the assessment year 1983-84.Analysis:The primary issue in this case revolves around the deduction claimed by the assessee for sales-tax and surcharge paid at an enhanced rate. The assessee contended that the liability accrued after the stay order was vacated by the Supreme Court in November 1982. However, the Assessing Officer rejected the claim, stating that the liability had actually accrued on the date of the amendment of the sales-tax law in 1979. The first appellate authority also declined to accept the plea that the excess demand was created after the vacation of the stay. The key argument put forth by the assessee was that the demand was under dispute, and therefore, payment was not required until the legal question was settled. The DFO's letter mentioning the demand being 'created' in 1986 was highlighted by the assessee to support the claim for deduction.The Departmental Representative (D.R.) argued that the liability accrued due to the amendment of the relevant law and not upon receiving a demand notice. It was emphasized that the liability arose under a government notification, and the DFO's actions did not create the demand. Reference was made to the agreement between the DFO and the assessee, which specified the payment of sales tax at a certain rate, indicating that the liability was inherent in the agreement. Additionally, judicial pronouncements were cited to support the view that the liability should be debited in the year it accrued, irrespective of when it was paid.The Tribunal analyzed various legal precedents cited by both parties, including decisions from the Supreme Court and High Courts, to determine the applicability of the deduction claimed by the assessee. It was observed that the liability arose as per the agreement dated 3-2-1979, following the amendment of the law, and not dependent on the final adjudication of the legal dispute. The Tribunal concluded that the demand was created by the amending law itself, and the stay order did not eliminate the liability but merely suspended it. Therefore, the Tribunal rejected the assessee's claim for deduction, emphasizing the retrospective effect of the amending law in determining the accrual of liability.In conclusion, the Tribunal held that the assessee, following the mercantile system of accounting, was obligated to claim the deduction upon the amendment of the law, regardless of the demand being created by the DFO. The retrospective nature of the amending law was crucial in establishing the accrual of liability, and the stay order did not alter the underlying demand. Consequently, the Tribunal found no merit in the assessee's claim for deduction, which was ultimately rejected.Additional Issues:The judgment also involves minor issues addressed in paragraphs 7 to 10, which are not detailed in this summary.