1994 (11) TMI 83 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of provision made for purchase tax liability.
2. Deduction of sales tax actually paid during the year.
3. Treatment of subsidy received from the Central Government in computing depreciation.

Summary:

Issue 1: Deduction of Provision Made for Purchase Tax Liability
The primary issue was whether the assessee was entitled to deduct the provision of Rs. 26,72,002 made for purchase tax liability u/s 5A of the Kerala General Sales Tax Act in the income-tax assessment for 1982-83. The Tribunal disallowed the claim, referencing the decision in Deputy CST v. Neroth Oil Mills Co. Ltd. [1982] 49 STC 249, and noting no demand had been made. However, the court observed that the legal position regarding the levy of purchase tax was fluid and indeterminate at the time, with divergent views among sales tax authorities and judicial bodies. The court held that a provision for a disputed tax liability could be allowed as a business expenditure u/s 37(1) if there was a bona fide reasonable apprehension of the liability. The court concluded that the assessee had a reasonable basis for apprehending the liability and thus was entitled to the deduction. The Tribunal's decision was reversed, and the first question was answered in favor of the assessee.

Issue 2: Deduction of Sales Tax Actually Paid During the Year
The assessee claimed a deduction of Rs. 27,595 paid towards sales tax during the year. The Tribunal found against the assessee, stating the payment did not relate to the relevant accounting year. The court did not delve into this issue extensively, noting that no serious arguments were presented by the assessee. Consequently, the second question was answered against the assessee.

Issue 3: Treatment of Subsidy Received from the Central Government in Computing Depreciation
The Revenue raised the issue of whether the subsidy received by the assessee from the Central Government should reduce the cost of machinery for computing depreciation. The Tribunal ruled against the Revenue, relying on the decision in CIT v. Relish Foods [1989] 180 ITR 454, which was approved by the Supreme Court in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830. The court upheld the Tribunal's decision, answering the third question against the Revenue.

Conclusion:
The court answered questions Nos. 1 and 3 in favor of the assessee and against the Revenue, and question No. 2 against the assessee and in favor of the Revenue. There was no order as to costs, and a copy of the judgment was to be communicated to the Income-tax Appellate Tribunal, Cochin Bench.