1996 (5) TMI 40 - HC - Income Tax

Summary

Issues:
- Deduction claimed for sales tax liability for assessment years 1976-77 and 1977-78.
- Whether the sales tax liability incurred by the assessee on turnover was allowable.

Analysis:
The assessee claimed deductions for sales tax liability on the sale of maida and suji for the assessment years 1976-77 and 1977-78. The Board of Revenue, as the final fact-finding authority, determined that there was no liability of tax on the sale of maida and suji by the assessee. The assessee based its claim on a later apex court decision, contending that the liability existed. However, the Revenue argued that no document was produced to prove the liability, and the assessee had not paid any amount to the Sales Tax Department, nor was any demand created. The Revenue further stated that the liability could not be inferred since the Board of Revenue had already ruled in favor of the assessee regarding the absence of sales tax liability.

In response, the assessee's counsel highlighted that a deposit was made towards sales tax liability for a specific period, emphasizing that the liability was created based on maintaining accounts on the mercantile system. The Income-tax Officer disallowed the deduction for the claimed amounts, stating no statutory liability existed. The counsel also referenced a previous court decision on a different matter involving the same firm but argued that the deduction should be allowed under section 37 of the Income-tax Act for expenses laid out wholly and exclusively for business purposes.

The court considered previous decisions and observed that the amount collected by the assessee was a trading receipt and not an allowable deduction as it had not been refunded to customers or paid to the government. The court concluded that without evidence of an ascertained or admitted liability for sales tax, the deduction could not be granted. It was noted that even in the return submitted to the sales tax authority, no liability was admitted, and the Board of Revenue had previously ruled in favor of the assessee. The Tribunal's reliance on its previous order for a different assessment year was deemed unjustified, leading to the judgment in favor of the Revenue and against the assessee regarding the allowance of the sales tax liability deduction on turnover.

In summary, the court held that the assessee failed to substantiate the sales tax liability claimed, and without concrete evidence of the liability, the deduction could not be allowed. The judgment favored the Revenue's position, emphasizing the importance of establishing a clear and admitted liability for claiming deductions under the relevant provisions of the Income-tax Act.