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TMI Blog1972 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... he previous year to the assessment year 1958-59 could properly be allowed as deduction in the assessment of that year - - - - - Dated:- 31-5-1972 - Judge(s) : P. K. GOSWAMY., BAHARUL ISLAM. JUDGMENT GOSWAMI C.J. - The following question of law is referred to us under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax: "Whether, on the facts and in the circumstances of the case, the sum of Rs. 43,377, representing the filial demand of sales tax which the assessee was called upon to pay during the previous year to the assessment year 1958-59 could properly be allowed as deduction in the assessment of that year ?" The statement of case relates to the assessment year 1958-59, the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture against its business income. Both the Incometax Officer, and the Appellate Assistant Commissioner in appeal refused to allow the deduction claimed. The Appellate Assistant Commissioner rejected the claim on the ground that the liability to sales tax " was completely disputed and every effort was made to deny the legality of the payment and to resist payment ". The assessee took the matter to the Tribunal. The Tribunal allowed the claim of the assessee basing on the fact that the Superintendent of Taxes made the final demand for full payment of Rs. 43,377, during the year 1957-58, for the period in question after the Commissioner of Taxes, Assam, had rejected the revision filed by the assessee. The Tribunal also found that after the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner, that that liability for the sales tax accrued when the sales were made during the periods mentioned above in 1949-50. That being the position, it is not permissible in law to allow deduction which is claimed in 1957-58 even under the mercantile system. He draws our attention to a decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income-tax, and relied upon the following passage: " Now under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras High Court had no difficulty in holding that the assessee had incurred an enforceable legal liability on and from the date on which he received the Collector's demand for payment and that his endeavour to get out of that liability by preferring appeals could not in any way detract from or retard the efficacy of the liability which had been imposed upon him by the competent excise authority. In our judgment, the above decision lays down the law correctly." Mr. Bhattacharjee submits that in this decision, which is also relied upon by Mr. B.K. Das for the assessee, it is apparent that the demand was made on November 21, 1957, when the assessment proceeding for the assessment year 1955-56, of which the previous year ended on December 31, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuously contended that since the income during the previous year has to be assessed and not of any period outside the previous year, it necessarily follows that the expenditure also must be of that particular accounting year. He drew our attention to a decision of the Supreme Court in Commissioner of Income-tax v. Gajapathy Naidu. " When an Income-tax Officer proceeds to include a particular income in the assessment, he should ask himself, inter alia, two questions namely: (i) what is the system of accountancy adopted by the assessee ? and (ii) if it is the mercantile system of accountancy, subject to the deemed provisions, when has the right to receive that amount accrued? If he comes to the conclusion that such a right accrued or arose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax demand in this case, which was an enforceable liability and as such a real expenditure, for which the assessee laid out the amount by debiting his account in the accounting year which was also the year of demand of the department, deduction can be legitimately claimed under section 10(2)(xv). Here is a case, where there is no doubt about the genuineness of the expenditure. There is also the compulsiveness in the sales tax demand which can be ignored only at peril of the assessee. This expenditure had never been taken note of in the earlier years for one reason or the other. In the absence of any legal bar in the way of the assessee claiming this expenditure in the year of demand for which provision has already been made in his acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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