1990 (2) TMI 114 - AT - Income Tax

Appellate Tribunal allows sales tax claim & car expenses deduction for company

The Income-tax Appellate Tribunal (ITAT) allowed the appellant company's claim for the differential sales tax liability of Rs. 13,68,680 for the ... Deduction In Respect, High Court, Mercantile System, Sales Tax Authorities, Sales Tax Liability Issues:1. Claim of sales-tax liability amounting to Rs. 13,68,680.2. Disallowance of car expenses and depreciation.Detailed Analysis:Issue 1: The appellant, a limited company, contested the disallowance of sales-tax liability amounting to Rs. 13,68,680 by the Commissioner of Income-tax (Appeals) for the assessment year 1982-83. The company argued that the Central Sales Tax Department had charged 4% sales tax on similar oils sold by other companies, while the appellant had paid tax at 1%. The appellant claimed that the differential amount should be allowed as a deduction. The Income-tax Appellate Tribunal (ITAT) noted that the liability for sales tax arises when transactions subject to tax occur, even if the exact amount is determined later. The ITAT relied on various court decisions to support the appellant's claim, emphasizing that the liability accrues in the year of the transaction, and the estimated liability can be deducted even if not paid to tax authorities. The ITAT concluded that the appellant was entitled to claim the differential sales tax liability of Rs. 13,68,680 for the assessment year 1982-83.Issue 2: The second ground of appeal pertained to the disallowance of Rs. 20,051 for car expenses and Rs. 3,164 for car depreciation by the Income-tax authorities based on personal use of the car by directors. The ITAT considered the nature of the directors' involvement in the company and their remuneration. It was highlighted that three directors were not involved in the daily operations and did not draw any emoluments from the company. The personal use of the car by one director, which was provided by another company, was not authorized as a term of employment by the appellant company. Therefore, the ITAT held that no disallowance could be made for car expenses or depreciation in the hands of the company. Consequently, the disallowances were overturned, and the appeal filed by the appellant was allowed in its favor.