1993 (10) TMI 59 - HC - Income Tax

Summary

Issues:
1. Whether the liability of Rs. 11,900 under the Rajasthan Land and Building Tax Act, 1961, for earlier years is deductible for the assessment year 1979-80?

Analysis:
The case involved a question of law regarding the deductibility of a liability under the Rajasthan Land and Building Tax Act, 1961, for earlier years amounting to Rs. 11,900 for the assessment year 1979-80. The Income-tax Officer disallowed the deduction as the amount related to years preceding the assessment year and the assessee maintained accounts on the mercantile basis. The Commissioner of Income-tax (Appeals) upheld the disallowance based on the CIT v. V. Krishnan case. However, the Income-tax Appellate Tribunal allowed the appeal, considering the liability as a statutory one, which crystallized only upon demand. The Tribunal's decision was supported by the Madras High Court judgments in CIT v. Woodlands Hotel and CIT v. East India Industries (M.) Pvt. Ltd.

The Tribunal found that the liability was statutory and not ascertained before the assessment order, as the assessee had paid only a partial amount for each year. The additional liability created by the assessment order was not quantified before finalization, and the demand notices issued crystallized the liability. The Tribunal concluded that the Rs. 11,900 liability demanded by the assessing authority under the Land and Building Tax Act was allowable as a deduction for computing the total income of the assessee for the relevant assessment year. The decision was in line with the principle that a liability must be ascertained and quantified before it can be considered for deduction. The judgment favored the assessee and went against the Revenue.

In summary, the court held that the liability of Rs. 11,900 under the Rajasthan Land and Building Tax Act, 1961, for earlier years was allowable as a deduction for the assessment year 1979-80. The decision was based on the statutory nature of the liability, which crystallized upon demand and was not ascertained before the assessment order. The judgment aligned with established legal principles and previous court decisions, ultimately ruling in favor of the assessee and against the Revenue.