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TMI Blog1978 (12) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was in law justified in holding that the assessee's claim for Rs. 26,453 representing liability to Central Sales Tax which was quantified through an assessment made on 10-7-73 was an allowable deduction in the year under consideration ? The reference relates to the assessment year 1974-75. The assessee was a registered partnership firm, having three partners, one of them being Rajendra Kumar. He was a partner representing his own HUF. The firm maintained two accounts in the name of Sri Rajendra Kumar, a capital account and a deposit account. The share of the profit of Rajendra Kumar was credited to the capital account, while to the deposit account the firm paid interest to Rajendra Kumar, amounting to Rs. 7,923 in this year. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment. In this view he held that the liability could not be allowed as a deduction in the assessment year 1974-75. The AAC agreed with this view. The Tribunal, however, held that the assessee was not aware whether the Central sales tax would be payable by him and it was for this reason that he could not make provision in the relevant year and accordingly allowed the claim. In Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, the Supreme Court has observed : Now under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation the obligation to pay the tax arises and taxability is attracted. Although that liability cannot been force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le him to claim it in the assessment year 1974-75, in which year the assessment was made and demand created against him. He urged that under s. 37(1) it is not obligatory that an assessee following the mercantile system of accounting should necessarily claim the deduction in the year in which the liability accrues. He can as well claim it in the year in which the liability is discharged and paid. We are unable to accept this submission. Section 37(1) provides that any expenditure laid out or expended for the purpose of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". When it says so, it contemplates two points of time at which a liability may be debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Gauhati) and CIT v. Banwarilal Madan Mohan [1977] 1 10 ITR 868 (All). In the first two cases it was held that sales tax for earlier years is an allowable deduction in the year in which the demand is created even if the assessee was maintaining his accounts on mercantile basis and had not made any claim in those years. With great respect we are unable to agree with this view. As already indicated by us, liability for payment of sales tax, which has accrued in one year, cannot be claimed as a deduction in a subsequent year under the Act. In Banwarilal's case [1977] 110 ITR 868 (All) the assessee was following the mercantile system of accounting. He had made provision for sales tax in the relevant year on estimate basis, which turned out to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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