1986 (2) TMI 27

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....rs & Goods) Act, 1963, relating to earlier years is to be allowed as a deduction in computing the assessee's income for the assessment year 1975-76 ? " The assessee is a firm carrying on business of passenger transport. The firm was constituted as per a deed of partnership dated November 1, 1959. Clause 11 of the partnership deed provides for the accounts of the firm to be maintained on mercantile basis and its accounts are maintained accordingly. The firm filed a return for the assessment year 1975-76 disclosing an income of Rs. 77,930. It had claimed deduction of Rs. 33,672 being the tax paid under the Kerala Motor Vehicles (Taxation of Passengers and Goods) Act, 1963. The Income-tax Officer noticed that out of Rs. 33,672 paid durin....

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....ee is following the mercantile system of accounting. The assessee has no case that it has no liability to pay the tax due under the Taxation of Passengers and Goods Act during the earlier years in respect of which it was discharging the arrears of tax due in instalments. There is also no dispute that the deduction of Rs. 17,091.72 disallowed by the Income-tax Officer relates to payment made by the assessee in discharge of its liability pertaining to the periods prior to the accounting period. When the assessee is following the mercantile system of accounting, it should have made provision for the liability accrued during each accounting period and claimed deduction in respect of the same in the relevant assessment years. It is not the actua....

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....l Bench of this court in the decision in CIT v. K. A. Karim and Sons [1982] 133 ITR 515, had to consider the question whether the tax under the Kerala General Sales Tax Act that had accrued prior to the accounting period but paid during the accounting period, was a permissible deduction. The Full Bench observed at page 519 : " Under the sales tax law of the State, the liability to pay tax arises in the year in which the transactions take place. For the period from September 1, 1970, to March 31, 1973, the assessee had effected purchases. Such purchases were liable to tax under the law as it stood then. The liability to tax arose under such law. That the Government took no steps for recovery of tax is irrelevant. That possibly pressure wa....