TaxTMI 
TaxTMI 
1996 (1) TMI 3
X X X X Extracts X X X X
X X X X Extracts X X X X
.... round the question in controversy deserve to be noted at this stage. The relevant assessment year is 1971-72. The respondent-assessee is a limited company which manufactures and sells steel tubes in the State of Orissa. During the previous year relevant to the assessment year 1962-63, the assessee was liable to pay sales tax under the Central Sales Tax Act. The Sales Tax Officer completed the assessment in respect of the assessment year 1962-63 on March 31, 1966, and demanded an additional amount of Rs. 11,02,698. The assessee unsuccessfully carried the matter in appeal and then filed second appeal before the Sales Tax Tribunal. The Tribunal, by its order dated May 28, 1970, reduced the additional demand of sales tax to Rs. 2,22,161. On the basis of the aforesaid order of the Tribunal, the respondent-assessee claimed deduction of the said amount as business expenditure in respect of the assessment for the previous year 1970-71 since, according to the assessee, the sales tax liability was of the assessment year 1971-72. The Income-tax Officer disallowed the said deduction in the relevant assessment year, as according to the Income-tax Officer, the assessee was following the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the liability to pay sales tax can be said to have initially accrued when the sales were effected but till the liability had ceased, it shall be treated to have continued to accrue and that when pursuant to the Tribunal's order a fresh demand notice was served by the Sales Tax Officer on the assessee, the liability of the assessee can be said to have accrued on receipt of such demand notice and, therefore, the assessee can claim the deduction under section 37 of the Income-tax Act during the assessment year 1971-72 even though the liability was of the assessment year 1962-63. It was submitted by learned counsel for the appellant that the aforesaid view of the High Court was erroneous. That the High Court had misread and misapplied the ratio of the decision of this court in Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363. On the other hand, learned counsel for the respondent-assessee submitted relying on the decision of this court in ITO v. Seghu Buchiah Setty [1964] 52 ITR 538 ; [1964] 7 SCR 148 that the order of the Sales Tax Officer merged in the order of the ultimate appellate authority, namely, the Sales Tax Tribunal, and it is only thereafter that the liability ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The aforesaid view of the High Court was upturned by this court in the decision of Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363, wherein this court made the following pertinent observations (at page 366). " Now, under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment. It is significant that in the present case, the liability had even been quantified and a demand had been created in the sum of Rs. 1,49,776 by means of the notice dated 21st November, 1957, during the pendency of the assessment proceedings before the Income-tax Officer and before the finalisation of the assessment. It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before the higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y to pay the sales tax for the assessment year 1962-63, reduced in second appeal before the Sales Tax Tribunal on May 28, 1970, to Rs. 2,22,161. But that would not affect the accrual of liability to pay sales tax on the basis of the mercantile system of accounting. It was submitted by learned counsel for the respondent assessee that if such entire deduction of Rs. 11,02,698 was sought for by the assessee during the assessment year 1962-63 and ultimately as held by the Tribunal the liability was reduced to Rs. 2,22,161 an incongruous situation would have arisen. Such a contention cannot be countenanced for the simple reason that if ultimately the tax liability is reduced and if in retrospect it was found that during the relevant assessment year the assessee had claimed a large amount of deduction by way of business expenditure the difference of the amount wrongly claimed and allowed in earlier relevant assessment year could always be added back in the assessment of the relevant subsequent assessment year. It is obvious that in no case, the assessee who was following the mercantile system of accounting could have claimed deduction for payment of Central sales tax dues for the assessm....