2005 (9) TMI 36 - HC - Income Tax

Whether, the Appellate Tribunal is right in directing the Income-tax Officer to allow deduction as statutory liability of luxury tax collected by the assessee? Whether the Appellate Tribunal is right in holding that if the unpaid sales tax liability and municipal tax pertaining to the last quarter is paid within the time stipulated for filing of return u/s 139(1), the provisions of section 43B cannot be made applicable? Whether, the Appellate Tribunal is right in deleting the addition made under the provisions of rule 6D observing that the assessee was right in contending that the limit prescribed in rule 6D should be applied to each tour individually but to all tours made during the relevant year consolidated together? Whether Tribunal was right in denying the deduction of subsisting liability by invoking provisions of section 43B, although the section was neither invoked by the lower authorities nor was the ground urged in appeal petition of the Revenue?

Summary

Issues:
1. Assessment year 1983-84: Whether luxury tax collected by the assessee is deductible as a statutory liability?
2. Assessment year 1984-85:
a. Whether unpaid sales tax liability and municipal tax paid within the stipulated time under section 139(1) can avoid section 43B application?
b. Whether the limit prescribed in rule 6D should apply to each tour individually or to all tours consolidated together?
c. Can the deduction of subsisting liability be denied by invoking section 43B, even if not raised by lower authorities or in appeal petition?

Assessment Year 1983-84:
The case involved a hotel company's challenge against the inclusion of luxury tax recovered from customers in its total receipts. The Tribunal found the luxury tax to be a statutory liability and deductible under the mercantile system of accounting. The Revenue argued that deduction was not justified due to pending constitutional validity challenge. The Court upheld the Tribunal's decision, stating that the liability accrued when customers were billed, regardless of pending litigation. The stay granted by the apex court was conditional, making the liability inevitable. The judgment cited the Kedarnath Jute case to support the deduction based on regular accounting practices.

Assessment Year 1984-85:
a. The Tribunal ruled that if unpaid sales tax and municipal tax for the last quarter are paid within the stipulated time, section 43B cannot be applied. This decision aligned with the Allied Motors case.
b. The Court disagreed with the Tribunal's application of rule 6D, stating that the limit should apply to each tour individually, not consolidated. This ruling was based on the Nutan Mills case.
c. The Tribunal invoked section 43B for the first time, denying the deduction of luxury tax liability based on actual payment. The Court upheld this decision, emphasizing the applicability of all relevant provisions during assessment.

In conclusion, the judgments addressed various issues related to tax liabilities, deductions, and accounting practices for the respective assessment years. The decisions were based on legal precedents, interpretations of relevant provisions, and factual findings by the Tribunal.