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TMI Blog1973 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ' A '), Ludhiana, will be taken over by the company." The liabilities of Messrs. Khalsa Nirbhai Transport Company Private Ltd. included tax liability to the income-tax department to the tune of Rs. 1,01,095 which were, in fact, advance tax, penalties, including income tax, and these liabilities were prior to the taking over of the company by the assessee. The assessee claimed the amount of tax paid by it on behalf of the transferor-company as a permissible deduction under sections 28 and 37 of the Income-tax Act. The Income-tax Officer disallowed this claim on the basis that " payment of liability in respect of the predecessor ca nnot be allowed as a deduction specially when the liability is that on income-tax ". The assessee appealed to the Appellate Assistant Commissioner who took the following view: " Whatever price was paid for taking over the company, the company was naturally fixed after taking into consideration the total value of assets and liabilities. The liabilities discharged in terms of the agreement of taking over the company can only be regarded as capital expenditure being part and parcel of the price paid for taking over of the assets together with the liabiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's predicament is perhaps like the proverbial serpent with the lizard in his mouth. If he swallows he dies : if he throws out he becomes blind. It was contended that if they were taxes, etc., paid pure and simple, section 40(a)(ii) would have had constituted an insurmountable bar for the assessee but the taxes, etc., so paid are not taxes, etc., paid as such but an obligation discharged undertaken in the process of the taking over as specified in article 18 of the memorandum of association. While we are much impressed by the very unusual but interesting arguments of the learned counsel for the assessee that section 40(a)(ii) is not applicable we cannot agree with him because section 40(a)(ii) does not mention whose taxes paid by whom. It only mentions " in the case of any assessee ..... any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. " It is an unqualified bar with no exit. Whatsoever, when the legislature places a bar, one cannot be allowed to cross it. The Tribunal is not to provide an exit where there is none. The learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g anything contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head "' profits and gains of business or profession ",- (a) in the cise of any assessee-... (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of, any such profits or gains. " There is one other provision which need be mentioned at this stage and that is section 170 which is in the following terms: " 170. (1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to a s the predecessor) has been succe eded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession, (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession (b) the successor shall be assessed in respect of the income of the previous year after the date of succession. (2) Notwithstanding anything contained in sub-section (1), when the predecessor c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of any assessee- (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business of, or otherwise on the basis of, any such profits or gains." Mr. Awasthy, who represents the department, on the other hand vehemently contends that section 40 does not warrant the taking into account of the scheme of the Act. The plain words of section 40 have to be given effect to and according to him so long as the liability is tax liability no matter how and in which circumstances it is paid and by whom the person paying it cannot claim it as a permissbile deduction. According to him tax liability is tax liability and can assume no other form. It is immaterial whether it is that of the assessee or some one else. Mr. Awasthy has put the following proposition in support of his contention : " Income of an assessee is processed under various heads including income from business carried on by him during the accounting period relevant to the assessment year. While processing the income under the head 'Business' an assessee is entitled to certain deductions which have been enumerated in sections 30 to 39. In the present case, the assessee has made a payment of tax lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t far and did not contend that the tax paid by B cannot be claimed as a permissible deduction under section 40. This would fully illustrate that the view that we have taken is the only view possible so far as section 40 is concerned. This view finds some support from the provisions of section 170 of the Act. Section 170 provides that the tax liability when a business is transferred prior to the date of transfer rests with the transferor and after the date of transfer rests with the transferee. But, in certain circumstances, the transferee may be made liable for the liability of the transferor. What really matters is that the liability is that of the transferor and not of the transferee and the mere fact that in certain circumstances that liability can be put on the shoulders of the transferee will not in any manner detract from the fact that the liability to tax all the same is that of the transferor. Before parting with this judgment, we may refer to the decision of the Supreme Court in Jaipuria Samla Amalgamated Collieries Ltd. v. commissioner of Income-tax. While dealing with section 10(4) of the 1922 Act which is equivalent to section 40 of the 1961 Act, their Lordships observ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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