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TMI Blog1979 (2) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... r. J. Jayaraman, the learned counsel for the Commmissioner, placed before us all the aspects of the question. The facts relevant to the question are as follows : The assessee is an individual who sells appalams by the trade name of " Ammami Appalam ". The same business is carried on at Trichy and Salem. The same brand of appalam is also sold through a firm called Ammami Appalam Depot with its head office at Madurai and branch at Coimbatore. The partner of the firm at the relevant time were V.Krishnan and R. V. Easwaran. Easwaran also like the assessee carries on individual business of selling Ammami Appalam in Madras. The assessee and Easwaran jointly manufacture appalams at Kallidaikurichi and the sales are effected through the various d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been raised against him. Similarly, for the accounting year 1967-68, there was a demand made as against the assessee in a sum of Rs. 10,170.58. But this amount also had not been paid. The total of these two demands came to Rs. 16,219.70 and the assessee claimed the said amount as deduction on the ground that the liability arose in the accounting year relevant to the assessment year 1972-73. The ITO did not agree with this contention and, on appeal, the AAC dismissed the appeal. When the matter came before the Income-tax Appellate Tribunal on appeal at the instance of the assessee, the Tribunal held that the assessee was justified in not making any provision for sales tax in the relevant accounting years to which they related and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter came before the High Court, Calcutta, the High Court was of the opinion that the unpaid and disputed sales tax liability could not form the basis of a claim for deduction. The assessee appealed to the Supreme Court and the Supreme Court pointed out : " It is not possible to comprehended how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se cases, it may not be possible even for a person maintaining his accounts on the mercantile basis to provide for the liability in the year to which it could be related taking into account the transactions of sale. In such cases, the assessee's claim for deduction would arise for consideration either in the year in which the assessee accepts the liability or in the year in which the amount is paid. As far as the present case is concerned, this is not the year in which either the liability to tax arose because of the transactions having been effected during that year, nor is this the year in which the assessee had paid the tax. The assessee had received only, a demand. There is nothing in the Sales Tax Act which would require the issue of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a unit for the purpose of making an assessment. Therefore, the eligibility for deduction will be dependent on what had happened during the previous year. In the absence of any provision to show that the existence of a demand is a condition precedent to the liability arising, the liability to tax, as pointed out by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, would ordinarily relate to the year in which the transactions took place. As we have already pointed out, it may also happen that that amount may have to be taken as a deduction in the year in which it is paid. Barring these two cases, mere receipt of the notice of demand in a particular year would not justify the allowance of deduction in that year. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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