1984 (7) TMI 97 - AT - Income Tax

Summary

Issues:
1. Taxability of credit note received by the assessee from Chunilal Pranjivandas & Co.
2. Claim for deduction of payments made by the assessee to meet sales tax liability of Chunilal Pranjivandas & Co.

Detailed Analysis:

Issue 1: Taxability of credit note received by the assessee
The assessee received a credit note from Chunilal Pranjivandas & Co., which was taxed as income by the ITO for the assessment year 1973-74. The Commissioner (Appeals) deleted this addition, and the revenue appealed to the Tribunal. The Tribunal held that the amount could not be taxed under section 41(1) of the Income-tax Act, 1961, as no equivalent deduction had been claimed and allowed to the assessee in earlier assessment years. The Tribunal further stated that the amount retained by Chunilal Pranjivandas & Co. could be considered part of the sale price, and any amount refunded by them to the assessee should be taxed as a trading receipt in the year of the sale, not when the credit note was received.

Issue 2: Claim for deduction of payments made to meet sales tax liability
The assessee claimed deductions for payments made to meet the sales tax liability of Chunilal Pranjivandas & Co. The ITO disallowed the claim, stating that it was not the assessee's liability. The Commissioner (Appeals) allowed deductions for certain years based on the agreement between the parties. The revenue contended that the sales tax liability was solely that of Chunilal Pranjivandas & Co., and the assessee should not have to meet this liability. However, the assessee argued that the agreement between the parties obligated them to pay the sales tax liability that might arise in the future. The Tribunal noted that while a previous order had stated that Chunilal Pranjivandas & Co. was liable for sales tax, the current issue was the contractual agreement between the parties. The Tribunal upheld the Commissioner (Appeals)'s decision to allow the deductions, as the liability discharged by the assessee was a proper deduction from its income based on the enforceable agreement.

In conclusion, the Tribunal dismissed the revenue's appeals and upheld the deductions allowed by the Commissioner (Appeals) for the payments made by the assessee to meet the sales tax liability of Chunilal Pranjivandas & Co. The cross-objections filed by the assessee were also dismissed as they were in support of the Commissioner (Appeals)'s order.