1981 (6) TMI 31 - HC - Income Tax

Summary

Issues involved:
The judgment involves issues related to the liability of an assessee to pay purchase tax on cashewnuts purchased from the Cashew Corporation, the impact of government notifications exempting and cancelling the tax liability, and the timing of when the liability to pay sales tax is incurred by an assessee.

Judgment Details:

I.T.R. No. 84 of 1978:
The case involves the assessment under the Income Tax Act for the year 1974-75 against a firm engaged in processing cashewnuts. The firm claimed a deduction for purchase tax payable for the years 1970-71, 1971-72, and 1972-73. The issue was whether the liability towards purchase tax in the accounting year ending on March 31, 1974, could be debited. The Tribunal found that the liability arose during the accounting year ended March 31, 1974, due to the withdrawal of the exemption notification by the government. The High Court held that the liability to pay tax arose in the years when the transactions took place, and provision had to be made accordingly. The liability did not arise for the first time on the cancellation notification of November 9, 1973. The question was answered in favor of the department.

I.T.R. No. 33 of 1978:
In this case, an individual assessee claimed a deduction for purchase tax on raw nuts purchased from the Cashew Corporation from September 1, 1970. The Appellate Tribunal held that the liability for purchase tax arose when the notification was cancelled in November 1973. The High Court disagreed, stating that the liability arose in the years when the transactions occurred, and provision had to be made accordingly. The liability did not arise for the first time on the cancellation notification of November 9, 1973. The question was answered in favor of the department.

The High Court emphasized that the liability to pay sales tax arises in the year in which the transactions take place, regardless of enforcement actions or exemption notifications. The court referred to previous decisions, including the Supreme Court's ruling in Kedarnath Jute Mfg. Co. Ltd. v. CIT, to support the view that the liability for payment of tax accrues during the year of assessment, even if it has to be discharged at a future date. The court held that the liability of a past year cannot be considered for computing the income of a subsequent year.

In conclusion, the High Court ruled against the assessees in both cases, stating that the liability to pay tax arose in the years when the transactions occurred, and provision had to be made accordingly. The court rejected the argument that the liability arose only when the exemption notification was cancelled, emphasizing that the liability was not dependent on retrospective operation of notifications.