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TMI Blog2004 (1) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm – Thus, our answer to the question is in the affirmative, i.e., in favour of the Revenue and against the assessee. - - - - - Dated:- 22-1-2004 - Judge(s) : M. S. SHAH., A. M. KAPADIA. JUDGMENT The judgment of the court was delivered by M.S. SHAH J.-In this reference at the instance of the assessee, the following question of law has been referred for our opinion in respect of the assessment year 1982-83: "Whether, on the facts and in the circumstances of the case, the Tribunal is right in coming to the conclusion that the amount of Rs. 1,18,920 representing income tax liability of the erstwhile firm and paid by the assessee company cannot be allowed as deduction as an expenditure while computing the taxable income in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85] 155 ITR 152. The Revenue preferred appeal before the Income tax Appellate Tribunal which analyzed the relevant provisions and also considered the decisions of the Supreme Court in CIT v. T. Veerabhadra Rao, K. Koteswara Rao and Co. [1985] 155 ITR 152, and the decision of the Punjab and Haryana High Court in Dashmesh Transport Co. Pvt. Ltd. v. CIT [1974] 93 ITR 275 and the decision of the Madhya Pradesh High Court in CIT v. Shriram Prayagdas and Mahadeo Prasad [1983] 144 ITR 883 relied upon by the assessee and held that the Commissioner of Income tax (Appeals) erred in allowing the aforesaid deduction of Rest. 1,18,920 and directed the Income tax Officer to disallow the same while computing the taxable income in the hands of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue has supported the judgment of the Tribunal and relied upon the following decisions: (i) Dashmesh Transport Co. Pvt. Ltd. v. CIT [1980] 125 ITR 681 (P H); (ii) Puspa Perfumery Products Pvt. Ltd. v. CIT [1992] 194 ITR 248 (Cal); (iii) Industrial Credit and Development Syndicate Ltd. v. CIT [1992J 196 ITR 574 (Karn); (iv) CIT v. Hyderabad Race Club [2001] 249 ITR 391 (AP). Before referring to the decisions cited by learned counsel at the Bar, it is necessary to refer to the relevant provisions of section 40 of the Act which expressly provide as under: "40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an incident flowing from the transfer of the business, together with its assets and liabilities, from the previous owner to the transferee. It is a right which should, on a proper appreciation of all that is implied in the transfer of a business, be regarded as belonging to the new owner." What is enunciated regarding the rights taken over by the successor will apply equally to the liabilities taken over by the successor including the liability to pay income tax of the predecessor. The issue arising in the present reference has been directly considered by the Calcutta High Court in Puspa Perfumery Products Pvt. Ltd. v. CIT [1992] 194 ITR 248 and it has been held as under: "In our view, whatever is not deductible in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83] 144 ITR 883 and of the Punjab and Haryana High Court in Dashmesh Transport Co. Pvt. Ltd. v. CIT [1974] 93 ITR 275. While the decision of the Madhya Pradesh High Court was distinguished by the Calcutta High Court, the decision of the Punjab and Haryana High Court was dissented from and reference was made to the subsequent decision of the Punjab and Haryana High Court in Dashmesh Transport Co. Pvt. Ltd. v. CIT [1980] 125 ITR 681. The Calcutta High Court then concluded that apart from the fact that the tax liability is not deductible where the assets and liabilities are taken into account for ascertaining the purchase consideration, the liabilities in effect reduce the purchase consideration. In other words, the liabilities form part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on the ground of commercial expediency but the converse is not true, that is to say, that where the assessee is bound to pay the income tax dues of the predecessor firm there can be no question of considering the deductibility of such payment. In the facts of the instant case, the Tribunal has given an additional reason to support its decision that the assessee was one of the partners of the erstwhile firm and the assessee had agreed to take over the tax liabilities of the erstwhile firm at the time of dissolution. Hence, under the provisions of section 189 also, the assessee was bound to pay the income tax dues of the erstwhile firm. In view of this finding given by the Tribunal, to which no exception has been taken, we find that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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