AI Drafter 
TaxTMI 
TaxTMI 
2004 (1) TMI 58
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.... of the erstwhile firm and paid by the assessee company cannot be allowed as deduction as an expenditure while computing the taxable income in the hands of the assessee?" We have heard Mr. R.K. Patel, learned counsel for the assessee, and Mr. M.R. Bhatt, learned standing counsel for the Revenue. The assessee claimed deduction of a sum of Rs.1, 18,920 in respect of income tax liability of the erstwhile partnership firm styled as M/s. Himson Textile Engineering Industries. The assessee company joined as a partner in the aforesaid partnership firm which was dissolved on December 31, 1979. A deed of dissolution was executed between the partners of the said firm on December 31, 1979, in which it was, inter alia, agreed that the assessee co....
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....id deduction of Rest. 1,18,920 and directed the Income tax Officer to disallow the same while computing the taxable income in the hands of the assessee company. The Tribunal distinguished the aforesaid decisions relied upon by the assessee and held that income tax is a personal liability and all the partners of the firm are jointly and severally liable for paying such income tax. The assessee was one of the partners of the erstwhile firm and at the time of dissolution, the assessee company undertook to make payment of all the liabilities of the erstwhile firm. Hence, the assessee had paid the amount of income tax as a part of the consideration for acquiring the running business of the erstwhile firm along with its assets and liabilities and....
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....ng anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession' (a) in the case of any assessee-... (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains;" The aforesaid categorical language of section 40 leaves no room for doubt that the income tax paid is not deductible and the section does not make any distinction between the income tax paid by the assessee on its own income and the income tax paid by the assessee on the income of the predecessor. At this stage,....
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....ourt in Puspa Perfumery Products Pvt. Ltd. v. CIT [1992] 194 ITR 248 and it has been held as under: "In our view, whatever is not deductible in the hands of the transferor as a trading liability cannot be allowed as a deduction in the hands of the transferee. By reason of the transfer of the assets and liabilities of the business, the nature and character of the liability cannot change. The plain words of section 40 have to be given effect to. So long as the liability is income tax liability, no matter how and under what circumstances it is paid and by whom, the persons paying it cannot claim it as a permissible deduction. In whatever language it is couched, tax liability is a tax liability and can assume no other character. It is immate....
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....to account for ascertaining the purchase consideration, the liabilities in effect reduce the purchase consideration. In other words, the liabilities form part of the purchase consideration. We are in respectful agreement with the views of the Calcutta High Court. We may further deal with the submission made by Mr. Patel for the assessee that the Madhya Pradesh High Court has laid down that the question whether the assessee was bound to pay the income tax dues of the erstwhile firm is immaterial. In our view, that is not the correct reading of the ratio laid down by the Madhya Pradesh High Court in Shriram Prayagdas and Mahadeo Prasad [1983] 144 ITR 883. In the facts of that case, the court held that the assessee was not liable to p....