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TMI Blog1994 (11) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... d locally were subjected to certain processes before they were exported to foreign countries. The firm claimed exemption from the liability to purchase tax under section 5A of the Kerala General Sales Tax Act, 1963, in respect of its purchases of prawns, under section 5(3) of the Central Sales Tax Act, 1956. But in the apprehension that liability may be cast on it for the purchase tax, the firm made provision in its accounts for the liability for various accounting periods up to 1988-89. The question arose under the Income-tax Act, whether the provision so made by the firm was business expenditure deductible under section 37(1) of the Act. By our judgment rendered today in Income-tax References Nos. 67 and 68 of 1992 (Abad Fisheries v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is pursuing the matter 'in some cases' unreasonable and unreal in the absence of a finding of any proceedings being pursued in the case of the firm in which the assessee is a partner ?" Standing counsel for the Revenue very seriously contests the deductibility of the amount with the plea that the amount of the provision cannot be termed "a debt owed" by the assessee on the relevant valuation date. He relies on the decisions of the Supreme Court in CWT v. Standard Vacuum Oil Co. Ltd. [1966] 59 ITR 569 and Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. We have held in our decision in Income-tax References Nos. 67 and 68 of 1992 (Abad Fisheries v. CIT [1995] 213 ITR 694) that the liability for payment of purchase tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x in respect of the year of account was thus a debt owed within the meaning of section 2(m) and as such deductible in computing the net wealth of the assessee. Standing counsel for the Revenue, however, sought to make a distinction that income-tax was an accrued liability, but the provision for sales tax could not be so treated. According to him, sales tax could not be recovered from the assessee unless and until the assessment was completed and demand made for the amount due. He sought to draw support for this proposition from the earlier decision of the Supreme Court in CWT v. Standard Vacuum Oil Co. Ltd. [1966] 59 ITR 569. We have gone through the decision very carefully, but we are unable to find anything therein which supports the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992 (Abad Fisheries v. CIT [1995] 213 ITR 694), after a discussion of the cases on the point, that the liability for sales or purchase tax is a present liability which accrues the moment the sales or purchases are effected. In our view, the amount for which provision is made for purchase tax is a liability in praesenti, and not a liability in futuro, and, therefore, a "debt owed" within the meaning of section 2(m). This view of ours finds support from the decision of the Supreme Court in CWT v. Vadilal Lallubhai [1984] 145 ITR 7. It was observed by the court at page 9 that it is settled law that an income-tax liability becomes crystallised on the last day of the previous year corresponding to the particular assessment year and a wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in T. V. Sundaram Iyengar and Sons (P.) Ltd. v. CWT [1969] 72 ITR 107, the court said that the structure of section 23A of the Indian Income-tax Act, 1922, and the manner in which the liability to additional super tax arises thereunder leave no room for doubt that the liability is not charged automatically by statutory force, but arises only from an order of the Income-tax Officer which he will make only after consideration of, and decision on, various factual factors. The case before the Bombay High Court in CWT v. A. E. Maskati [1981] 132 ITR 89 was also a case of additional super tax where again the court held that the liability arises only as and when the Income-tax Officer makes the assessment and issues the demand. These decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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