1999 (12) TMI 46 - HC - Income Tax

Summary

Issues: Disallowance of deduction for unpaid provision of cess for green tea leaves under the Agricultural Income-tax Act, 1939.

Analysis:
The petitioner, engaged in the cultivation and sale of green tea leaves, submitted a return for the assessment year 1992-93, showing an amount payable as cess for green tea leaves. The Assessing Officer disallowed the amount, stating it was not paid during the relevant financial year. The appellate authority upheld this decision, leading to the present petition.

The petitioner's claim was rejected based on the argument that deduction for unpaid provision is not allowable under sections 8(2)(e) or 8(2)(f)(vii) of the Agricultural Income-tax Act, 1939. Section 8(2)(f)(vii) allows deduction for any expenditure laid out wholly and exclusively for earning agricultural income. The court found that the payment of cess on green tea leaves is an accrued liability and thus an allowable deduction.

The Assessing Officer and the appellate authority emphasized the term "paid" in section 8(2)(e) and referred to section 43B of the Income-tax Act, stating that only amounts actually paid during the accounting year are deductible. However, the court noted that the Assam Agricultural Income-tax Act does not have a similar provision, and section 37 of the Act allows for such deductions.

The petitioner argued that they maintain accounts in the mercantile system, where liabilities can be considered as expenditure when they arise. Citing a precedent, the court highlighted that under the mercantile system, if a liability arises during business operations, it can be regarded as expenditure. Since the Act lacks a provision similar to section 43B of the Income-tax Act, and considering the petitioner's accounting system, the court concluded that the deduction should not have been disallowed.

In the final judgment, the court allowed the writ petition, setting aside the orders of the Assessing Officer and the appellate authority. The petitioner was deemed entitled to claim a deduction for the cess payable by them, emphasizing the discrepancy between the Income-tax Act and the Assam Agricultural Income-tax Act regarding the treatment of accrued liabilities.