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TMI Blog1985 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1974-75, the assessee claimed the liability for sales tax amounting to Rs. 49,110 which was rejected by the Income-tax Officer on the plea that the assessee is a contractor and was not registered under the Sales Tax Act and hence there was no liability on it to pay the sales tax, that it was neither obliged nor did it file any quarterly returns to the Sales Tax Department and as such it was not under any obligation to pay sales tax and hence no liability accrued. Accordingly, the prayer of the assessee was disallowed. The matter was agitated in appeal by the assessee before the Commissioner of Income-tax (Appeals) who allowed the same holding: " In my opinion, the grounds given by the Income-tax Officer did not jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sales tax, the obligation to pay sales tax arose, and the assessee who follows the mercantile system of accounting was entitled to deduct from the profits and gains of its business, the amount equal to the liability. In this case, section 4 of the Madhya Pradesh General Sales Tax Act and section 6 thereof did not leave any room for doubt that the appellant is liable to pay sales tax. The ground given by the Income-tax Officer for rejecting the claim of the appellant is, therefore, irrelevant and immaterial. The liability was as during the previous year and it is also allowable as a deduction in computing the appellant's income. Therefore, the sum of Rs. 49,110 is excluded from the assessment." The Commissioner filed an appeal before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court decision in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363. Learned counsel for the Department, on the other hand, contended that since there is no assessment and no sales tax has been paid by the assessee, there is no question of adjusting the liability of sales tax and it is open to the assessee to claim deduction when, in fact, the assessee is required to pay the sales tax, by relying on two decisions of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, which held per curiam that the appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government and in Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615, holding that the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the point of view of an assessee who was maintaining his accounts on mercantile basis, as no such question arose in those cases and the question directly came up before the Supreme Court in Kedarnath Jute manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363. In the present case, the Tribunal has found that the assessee is not registered dealer and no proceedings for levy of sales tax were there, the limitation for initiation of proceedings under the provisions of the Madhya Pradesh Sales Tax Act, has already expired and as such it is not liable to pay sales tax. Moreover, no sales tax has been paid at all. However, learned counsel for the assessee urged that this has not been stated in the statement of the case submitted by the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the tax should be actually assessed or paid. The assessment or the payment may be made later on. As had been observed by the Allahabad High Court in Deepchand Shyam Sundar v. CIT [1980] 125 ITR 724, before such an entry could be made, the liability must be a legal liability and not a mere hypothetical one. Under the circumstances, the Tribunal was right is not allowing deduction in respect of sales tax amounting to Rs. 49,110. In the Supreme Court case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, the tax was already assessed by the Sales Tax Officer and the matter was pending in appeal and under these circumstances, the Supreme Court made the aforesaid observations. The assessee has also relied on a Full Bench dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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