TaxTMI 
TaxTMI 
1985 (10) TMI 129
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....riod as after the close of the year, there was a surplus of Rs. 74,180 in the purchase tax account. According to the ITO, this surplus was to be included as the assessee's income. 3. The assessee explained that the firm was following mercantile system of accounting and it was debiting the party's account and crediting the purchase tax account for each transaction. According to the assessee, it had no interest in this amount of purchase tax as it was to be paid to the Sales Tax Department under the provisions of law. It was also submitted that in certain cases the amount was not payable to the Sales Tax Department but was to be paid back to the parties concerned. This was so when the parties concerned produced certificates from the Sales Tax Department that they have paid tax directly on the relevant transaction. The assessee had relied on certain case laws for the proposition that the balance in the account represented the assessee's liability to the Sales Tax Department under the sales tax law. 4. The ITO was of the view that the assessee could not be treated as discharging the liability of somebody else and the collections of purchase tax was as law requires the assessee to....
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....that the liability for paying the purchase tax accrued and arose at the time of purchase either made on the assessee's own account or on account of other parties. It was, therefore, contended that even if there was a surplus in the purchase tax account the assessee was treating it as its liability to be paid to the Sales Tax Department in view of the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. Reliance was also placed on the decision of the Allahabad High Court in CIT v. Poonam Chand Trilok Chand. 6. The Commissioner (Appeals) was of the view that the surplus in the account represented liability which had arisen and as the assessee was maintaining accounts on mercantile basis, the assessee could claim it as a deduction. The Commissioner (Appeals) also found support from the decision of the Allahabad High Court in the case of CIT v. Poonam Chand Trilok Chand. The Commissioner (Appeals) held that the payment by the assessee in different years after the close of the accounting year was not important and as the assessee was following mercantile basis, the purchase tax was a liability which arose at the time of purchase itself and this had to be consider....
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..... The quantification of the actual liability comes later on but the charge is created by the section itself. Our attention was also drawn to the provisions of section 29A of that Act under which any amount realised by a dealer as realisation of tax the dealer had to deposit the entire amount into the Government treasury within the prescribed period notwithstanding that the dealer may not be liable to pay such amount as tax or that only a part of it was due from him as tax under this Act. Any amount deposited by any dealer shall to the extent to which it is not due as tax can be held by the dealer in trust for the person from whom it was realised by the dealer. There are provisions for the refund of such amount to those persons from whom it is originally realised. Thus, the law contemplates a charge on the purchases and also provides for the deposit of tax collection with the Government in all cases. 10. We are dealing with a case of Uttar Pradesh and we have got the decisions of the Allahabad High Court in similar cases which have been relied upon by the assessee as well as by the Commissioner (Appeals). In the case of CIT v. Poonam Chand Trilok Chand, the High Court was dealing....
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....rder. 2. There was a clear surplus of Rs. 74,180 in the purchase tax account. In fact, the total receipt amounted to Rs. 1,88,912. Before arriving at the surplus, all the purchase tax liabilities had been satisfied. No liability in respect of year under consideration was outstanding. There was no demand pending. The, surplus of Rs. 74,180 was clear of all clogs. May be the assessee collected more money by way of purchase tax then was required to deposit in the State Treasury. Such surplus had got no outstanding and conceivable liability. It was, therefore, a clear receipt includible in the income. The learned Commissioner (Appeals) was, therefore, not justified to delete the inclusion of Rs. 74,180. The factual position is absolutely against the assessee. The deletion was, therefore, not justified on facts, the ruling to the contrary not withstanding. In my considered view, the addition made by the learned ITO should have not been deleted by the learned Commissioner (Appeals). It is, therefore, difficult to support such a finding, and I quash the same. 3. In the result, the revenue's appeal succeeds. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 We have differe....
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....s made in the year out of which Rs. 60,834 related to the payments made to current year's liability and the balance of Rs. 24,986 related to payments made after the close of the year but relating to current liability. There was a further payment of Rs. 28,912 made in the accounting year but relating to the liability of the earlier years so that the total payment made was Rs. 1,14,732. Deducting this payment from the credit balance of Rs. 1,88,912, there was still credit balance of Rs. 74,180. The dispute was in regard to the treatment of this sum. The assessee contended that this credit balance though appears as a surplus in the accounts did not really represent its income because it was either payable to the Government of Uttar Pradesh on the assessments being finalised to sales tax and purchase tax or to be made over to the Government of as per the provisions of UP Sales Tax Act as amended from time to time or to be refunded to the parties concerned. It was further contended, with which we are more concerned in this matter, that the assessee was maintaining its accounts on mercantile basis and under that basis a liability to pay the amount to the Government simultaneously arose a....
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....x in the hands of the assessee?" 4. I have heard Shri R.N. Bara for the revenue and Shri Ram Lal for the assessee and perused the records and I am of the opinion that the view expressed by the learned Accountant Member is more in accord with the established principles of law and facts. The learned Accountant Member pointed out in his order that the decisions of the Allahabad High Court in the cases of CIT v. Poonam Chand Trilok Chand and the latter on in Poonam Chand Trilok Chand v. CIT were directly on the issue and this case coming as it did from the Uttar Pradesh the decision of the Allahabad High Court was binding following which it must be held that the sum in question could not be regarded as income of the assessee. In both these cases the High Court held that corresponding liability to pay the tax arose as per the mercan-the system of accounting adopted. In Poonam Chand Trilok Chand v. CIT the Allahabad High Court held whether an assessee is entitled to deduction of certain payments or not will depend upon the provision of law relating thereto and not on the view which the assessee might take of its liability nor can the existence or absence of entry in its books of accou....
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.... relevant accounting year did not alter. the position. It was following these two decisions, the learned Accountant Member has observed above held that even if the surplus of Rs. 74,180 is to be regarded as income, since a corresponding liability to pay the amount to the Government arose, that amount should be allowed as a deduction with the result that no income results. The learned Accountant Member also noticed that under the UP Sales Tax Act if any amount is realised by a dealer purporting to be tax, such dealer shall deposit the entire amount so realised into the Government Treasury within such period as may be prescribed notwithstanding that the dealer is not liable to pay such amount as tax or only a part of it was due from him as tax. He pointed out relying upon this provision that the liability to deposit the same accrued and as a consequence the amount in question could not be regarded as income. But the learned Judicial Member pointed out in his order that (a) no liability in respect of year under consideration is outstanding, (b) there was no demand pending, (c) the surplus of Rs. 74,180 was cleared of all clogs, and (d) may be the assessee collected more money by way o....