2002 (5) TMI 9 - HC - Income Tax

Disallowance of sales tax Additions on account of difference between the collection and payment of tax - mercantile system of accountancy being followed by the assessee - Tribunal deleted the additions made by the Assessing Officer in the reassessments on account of the sales tax - - no substantial question of law arises in this revenue s appeal and the same is liable to be dismissed.

Summary

Issues involved:
1. Determination of Central sales tax as revenue receipt and deduction for assessment year.
2. Interpretation of 'actually pays' in the context of mercantile system of accountancy.

Issue 1: Determination of Central sales tax as revenue receipt and deduction for assessment year:
The appellant sought determination on whether the Central sales tax payable, though a revenue receipt, was also allowable as a deduction for the assessment year due to the mercantile system of accountancy. The respondent-assessee, a partnership concern, had collected Central sales tax and the Assessing Officer made an addition of the tax amount. However, the Commissioner of Income-tax (Appeals) deleted the addition based on the principle that the tax collected did not belong to the assessee but to the government, and thus, the liability to pay it arose immediately upon collection. The Tribunal upheld the Commissioner's decision, emphasizing that the tax collected was not the assessee's income. The Tribunal's decision was based on the view that the tax collected formed part of trading receipts but the liability to pay it was allowable as a deduction. The High Court concurred with the Tribunal's decision, noting that the addition was rightly deleted based on the previous judgment in a similar case. Therefore, the High Court dismissed the appeal, holding that no substantial question of law arose in this issue.

Issue 2: Interpretation of 'actually pays' in the context of mercantile system of accountancy:
The second issue revolved around the interpretation of the term 'actually pays' in the context of the assessee following the mercantile system of accountancy. The appellant argued that the Division Bench's decision was based on a misreading of the Supreme Court's judgment in a previous case. The Division Bench had considered the conflict between two Supreme Court decisions and concluded that the manner of keeping accounts and claiming deductions without actual payments was allowed under the mercantile system. The Division Bench differentiated between the two Supreme Court decisions, emphasizing that the specific point regarding the timing of claiming deductions did not directly arise in the case under consideration. The High Court rejected the appellant's argument, stating that the Division Bench's interpretation was correct and that there was no conflict between the two Supreme Court decisions. The High Court held that the orders passed by the lower authorities were not vitiated by error and relied on the previous judgment to dismiss the appeal. Consequently, the High Court found no substantial question of law in this issue and upheld the lower authorities' decisions.

In conclusion, the High Court dismissed the appeal, finding no substantial questions of law in either issue raised by the appellant. The judgment emphasized the principles of revenue receipts, deductions under the mercantile system of accountancy, and the correct interpretation of relevant legal precedents in determining the tax treatment of Central sales tax collected by the assessee.