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TMI Blog1996 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (Appeals) on the ground that the assessee was maintaining the mercantile system of accounting and, therefore, its liability to purchase tax had to be taken into consideration while making assessment. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the Revenue approached the Income-tax Appellate Tribunal which affirmed the view taken by the appellate authority in regard to the claim of the assessee for deduction of the amount of purchase tax. Thereafter, the Revenue filed applications under section 256(1) of the Income-tax Act, 1961, for reference of the question of law. The Tribunal rejected all the applications by placing reliance on a decision of this court in Sirsa Industries v. CIT [1989] 178 ITR 437. Shri R. P. Sawhney, learned senior counsel appearing for the Revenue, argued that as the assessee had not paid the amount of purchase tax, it was not entitled to claim, exemption on the basis of notional figures of purchase tax. Shri Sawhney submitted that the competent authority constituted under the Punjab General Sales Tax Act, 1948, had not made assessment of the purchase tax and, therefore, the petitioner was not entitled to claim any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal liability was not enough and the unpaid and disputed sales tax could not be validly deducted in the computation of business income. Their Lordships referred to an earlier decision of the Calcutta High Court in CIT v. Royal Boot House [1970] 75 ITR 507, and also took cognisance of the distinction sought to be made by the Revenue on the ground that in that case the liability to pay the sales tax had not been disputed and the assessee had made a provision for its payment in its accounts and proceeded to observe : "An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date." While rejecting the argument that the assessee had not debited the liability in its books of account, their Lordships of the Supreme Court further observed : "We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd observed (pages 441 and 442 of 178 ITR) : "We have closely read both the decisions of the Supreme Court and are of the opinion that while in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, the manner of keeping mercantile system of accounting and claim of deduction of sales tax from the profits without making actual payments, was allowed such a point did not directly arise in Chowringhee Sales Bureau's case [1973] 87 ITR 542. In Chowringhee Sales Bureau's case [1973] 87 ITR 542, the sole point for consideration was whether an auctioneer would be a dealer within the meaning of the Bengal Finance (Sales Tax) Act, 1941. In the Sale of Goods Act, 1930, an auctioneer is neither the seller nor the buyer and is merely a commission agent. In an earlier decision (See [1969] 71 ITR 131), the Calcutta High Court had declared the provision whereby an auctioneer was made liable to sales tax, as ultra vires and, therefore, the precise question before the Supreme Court was whether the decision of the Calcutta High Court declaring the provision to be ultra vires was right or wrong and it did not agree with the Calcutta High Court and held that it was within the competence of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en paid to the sales tax authorities.' In this judgment, the earlier decisions of the Supreme Court relating to the same assessee in [19731 87 ITR 542 and in Kedarnath's case [1971] 82 ITR 363 were noticed and in view of the fact that the assessee was maintaining the mercantile system of accounting, deduction was allowed on the basis of accrual of liability. This decision further explains that the point in [1973] 87 ITR 542 was different from the point which was decided in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), the cases referred to above relating to other High Courts and this court and the case before us. In view of the aforesaid discussion, although it is held that Chowringhee Sales Bureau P. Ltd. was maintaining the mercantile system of accounting, yet there is no conflict between Kedarnath's case [1971] 82 ITR 363 (SC) and Chowringhee Sales Bureau P. Ltd. [1973] 87 ITR 542 (SC) as in [1973] 87 ITR 542 the precise point was not under consideration. Accordingly, following Kedarnath's case [1971] 82 ITR 363 (SC), the two decisions of this court and of other High Courts referred to above, it is held that 'the Income-tax Officer had rightly allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave taken a view different than the one taken by this court but on a careful reading of the two decisions, it becomes clear that they have no bearing on these petitions. The Allahabad High Court was concerned with the claim of the assessee for deduction of the amount payable in the form of salary and wages. The Division Bench of Allahabad High Court held that till the liability of the employer crystallised or became due or could be ascertained the assessee was not entitled to claim deduction and it was entitled to claim such deduction in the year in which the amount actually became payable. Before the Calcutta High Court, the facts were that the assessee was not under any statutory liability to pay excise duty. Rather it was a contingent liability. The Calcutta High Court held that in respect of such liability, the provision made by the assessee for differential duty was not deductible under section 37. Thus neither of the two decisions relied upon by Shri Sawhney is of any assistance to the case of the petitioner. In Guranditta Mal Shanti Parkash Zira's case [1987] 164 ITR 774 (P H), decided by this court, the assessee was following the mixed system of accounting. This court hel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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