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TMI Blog1985 (9) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... th Oct.,1975. On the dissolution of that firm the present assessee took over the business and was continuing the same w.e.f.13th Dec., 1977under a fresh deed of partnership dt.27th April, 1980. This fresh partnership deed provided in cl. 11 that certain provisions for payment of sales-tax and certain refunds received from sales-tax paid in earlier years are lying with the unit Kwality Ice Cream Company. It also provided the matter in which those refunds should be dealt with by the successors to that firm i.e., the present firm. That amount should first be utilised for the payment of sales-tax or purchase tax in respect of the period upto31st Dec., 1977and legal expenses connected therewith. Then for the payment of income-tax, which may be found payable by the firm or the partners as a result of cessation of sales-tax liability for the period upto31st Dec., 1977and the surplus if any, to be shares among the partners of the present firm. 2. The IAC took the view that though the demand for the payment of the purchase-tax was received during the accounting year under appeal, it relates to the period before 31st Dec., 1977 and consequently as per the provisions of cl. 11 of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Instead they desired that it should be kept as a fund for the purpose of meeting these liabilities and only to be shared thereafter. Thus it was only as source provided for the payment of liability. Merely because a source for the payment of a liability is indicated, it does not mean that that ceased to be a liability. The fund, namely, the sales-tax refund amount available belonged to the present firm in the sense that the surplus has to be divided by them. That amount which belonged to the partners can be said to have become partnership property subject to those liabilities. Any amount paid in discharge of a liability of a firm nonetheless is a liability of the firm irrespective of the source from it was met. Therefore, the authorities below were in error in making the point that it was not the liability of the assessee firm. It was further submitted that merely because the assessee was contesting the liability it did not cease to be a liability so long as there was an enforceable demand pending against the assessee. The Departmental Representative strongly contested the allowance of this claim as a deduction. 4. We are of the opinion that the view taken by the Revenue on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. It is the assessee firm that has to discharge the liability. It is not open to the assessee firm under the sales-tax law as the successor of the old firm to deny the liability. There is nothing in the partnership deed to provide that the old firm's liability should be discharged by the old firm alone. Even if such a condition is provided for in the partnership deed yet under the sales-tax law the successor firm has to meet the liabilities of the predecessor's firm and under the sales-tax law the successor firm can be proceeded against for the recovery of the same. Therefore, it cannot be said to be a liability not belonging to the present firm merely on the ground that it related to a previous year and there is a provision pointing out the refund from which this liability is to be met. We are clearly of the opinion that this is the liability that has come up on the assessee as a trader and the amount should be allowed as a deduction notwithstanding that the amount was not paid or the amount was under contest. For these reasons we are inclined to accept the assessee's contention on this point. 5. The next ground is in respect of disallowance of Rs. 39,759 out of furniture and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furniture was about Rs. 8,000 in this hands of the old firm. It was on account of the revaluation of this furniture that the w.d.v. again came to Rs. 43,030. When the furniture was revalued in this manner, we do not think any real loss was incurred by the assessee and the purpose for which s. 41 and enacted was to allow the real loss to the assessee and not notional loss. This view is amply borne out by repeated references to "actual cost" in s. 41 of the Act. We think the disallowance is proper and we confirm it. 6. The next ground relates to the disallowance of Rs. 5,000 out of the Rs. 17,500 disallowed on expenses incurred on flat aBombay. The reason given by the Department for the disallowance of this expenditure was that this included personal expenses of the partners while the assessee contended that this was an expenditure incurred wholly and exclusively for the purpose of the business. It is on record that the partners live inDelhiin their own residential houses and go toBombayonly for business purposes. Such being the case, we do not think there is any necessity to estimate personal expenses in the claim made by the assessee. The disallowance is not based upon any proved ..... X X X X Extracts X X X X X X X X Extracts X X X X
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