1996 (9) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Adjustment of purchase tax liability in the returns filed by the assessee.
2. Entitlement to claim deduction for unpaid purchase tax under the mercantile system of accounting.
3. Validity of the Tribunal's reliance on the decision in Sirsa Industries v. CIT.
4. Applicability of various precedents cited by the Revenue and the assessee.

Detailed Analysis:

1. Adjustment of Purchase Tax Liability:
The core issue revolves around whether the assessee can adjust the purchase tax liability in its returns. The assessing authority initially rejected the assessee's claim, leading to appeals. The Commissioner of Income-tax (Appeals) allowed the adjustment based on the mercantile system of accounting. The Tribunal affirmed this decision, leading the Revenue to seek a reference to the High Court.

2. Entitlement to Claim Deduction for Unpaid Purchase Tax:
The Revenue argued that the assessee could not claim deduction for unpaid purchase tax, as the competent authority under the Punjab General Sales Tax Act had not assessed it. The Revenue cited various cases, including CIT v. Guranditta Mal Shanti Parhash Zira, CIT v. Ashok Iron and Steel Rolling Mill, and Peico Electronics and Electricals Ltd. v. CIT, to support their position. The assessee countered by referencing Sirsa Industries v. CIT, asserting that the principles laid down were correctly applied.

3. Validity of the Tribunal's Reliance on Sirsa Industries v. CIT:
The High Court examined whether the Tribunal correctly relied on Sirsa Industries v. CIT. The court referred to the Supreme Court's decision in Kedarnath Jute Manufacturing Co. Ltd. v. CIT, which established that an assessee using the mercantile system could deduct liabilities accrued during the assessment year, even if unpaid. The court found no conflict between Kedarnath and the subsequent decision in Chowringhee Sales Bureau v. CIT, noting that the latter did not directly address the same issue.

4. Applicability of Various Precedents:
The High Court reviewed several precedents to determine their relevance. In Kedarnath, the Supreme Court allowed deduction of sales tax liability under the mercantile system, regardless of payment status. In Sirsa Industries, the Punjab and Haryana High Court upheld a similar principle. The court distinguished the cases cited by the Revenue, noting differences in facts and the nature of liabilities involved. For instance, the Allahabad High Court dealt with salary and wages, while the Calcutta High Court addressed contingent excise duty liabilities.

Conclusion:
The High Court concluded that the Commissioner of Income-tax (Appeals) and the Tribunal correctly allowed the deduction of purchase tax liability under the mercantile system. The court found no question of law warranting further consideration, affirming the Tribunal's reliance on established legal principles. Consequently, the petitions filed by the Revenue were dismissed.