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TMI Blog1987 (8) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... a condition of their purchases, the assessee should bear all the sales-tax liability raised on V. P. on all purchases made by the assessee. On 25-5-1979, the assessee wrote back stating that he was agreeable to the terms and conditions as stated in the assessee's letter. As far as sales-tax is concerned, he stated that he will be paying by way of Demand Draft or challan direct to the Commercial Tax Officer on the liquor sold by V. P. and purchased by the assessee. 3. On 3-11-1979, V. P. wrote another letter to the assessee. In this letter, it was stated that the additional sales-tax liability if any in additional to the sales-tax agreed to be paid by the assessee shall also be borne by the assessee, should the sales-tax department demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the accounting year under consideration these writ petitions were pending. But, it appears that in 1983 the High Court had dismissed these writ petitions and in January 1987 the Supreme Court had also upheld the Government's method of levy of sales-tax and additional sales-tax. 6. For the asst. year 1981-82, the assessee claimed before the Income-tax Officer that the additional sales-tax leviable on M/s. V. P. in respect of the goods purchased by the assessee is a liability of the assessee and it should be allowed as a deduction. The Income-tax Officer in a long and detailed order held that the assessee is not entitled to this deduction. He pointed out that the liability was only a contractual liability although it might constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e discharge of the statutory liability to pay sales-tax on the turnover of the dealer (VP), would constitute an accrued and ascertained liability, considering the mercantile system of accounting followed and the relevant principle of law as laid down in various Supreme Court decisions and in the Andhra Pradesh High Court decision and in the case of CENTRAL WINES, regarding the treatment of the sales-tax paid by the purchaser as forming part of the sellers' turnover. Merely because the seller had disputed the tax liability in its own sales-tax assessment proceeding and the fact that the sales-tax assessment in its case was completed long afterwards, would not make the impugned liability a contingent liability or a.liability de-futuro. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment demand any additional sales-tax from us. This arrangement is in respect of the transaction commencing from 1-8-1979. Thanking you, Yours faithfully, Sd/ Partner." It would be seen that the letter is conditional, i.e., "should the Sales-tax Department demand any additional sales-tax" then the assessee has to pay that amount ? This letter was written on 3-11-1979 and reflected the doubts of V. P. regarding the likelihood of such a liability accruing to them. This is not the first year when V. P. had been called upon to pay this amount. It is quite likely that for the earlier year also, they were called upon to make these payments and the matter had already been disputed. That is why, they make it conditional "should the Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act should not be read as statute. They are letters of businessmen and it should be understood in a way the businessmen understand these letters. By these letters the assessee had taken over the liability of additional sales-tax. It is true that this liability is a contractual liability but according to Sri Reddy the statutory liability of V. P. becomes a contractual liability of the assessee as soon as the purchases are made. According to him, it may be that it is not demanded by the sales-tax department but it is very easy to quantify them. Such a quantified additional cost of the goods must be allowed in the year in which the goods were purchased. We are unable to agree with this submission. It is true those letters should not be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the additional liability is more than 20 per cent and no businessman would take over himself such a large liability. he submitted that assessment order was only a matter of quantification and the claim for the liability need not wait till such a quantification is done. 11. We are unable to accept this submission also. Under the mercantile system of accounts, only a liability which has arisen must be allowed as a deduction. it is quite true that sometimes provisions are allowed but in those cases the liability was definite and only the payment is postponed. In this case there is no definiteness about the accrual of the liability. The whole matter was in dispute. V. P. had not admitted such a liability. Whether the High Court wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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