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TMI Blog1961 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of a tax which the Legislature of the State was competent to levy on the ground that the method devised for computing the tax liability was ultra vires. The tax was duly assessed and paid and the reasonableness and necessity must be adjudged in the light of the circumstances then prevailing and not in the light of subsequent developments. The High Court was right in answering the question in the negative. Appeal dismissed. - - - - - Dated:- 10-3-1961 - Judge(s) : J. L. KAPUR., J. C. SHAH JUDGMENT The judgment of the court was delivered by SHAH, J.--The assessees are a firm carrying on the business, at Kurnool, of manufacturing groundnut oil and cake. Under the Madras General Sales Tax Act (IX of 1939) the assessees we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 31-3-1942 2,679 1,872 807 31-3-1943 3,046 2,863 183 31-3-1944 14,509 18,402 3,893 31-3-1945 47,276 20,037 27,239 31-3-1946 45,315 13,379 31,936 For the assessment year 1946-47 (corresponding to the year of account October 18, 1944, to November 4, 1945) the assessees claimed, in their assessment to income-tax, to deduct Rs. 49,633 being the amount of sales tax paid under a provisional assessment. In the year ending March 31, 1945, the assessees had paid Rs. 47,276 as sales tax provisionally assessed. They also had paid in that year Rs. 3,894 in adjustment of the liability for the previous year towards sales tax due. After giving credit for Rs. 1, 537 received as rebate, the total sales tax liability under the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to hold that the aforesaid sales tax payments of Rs. 30,221 were unreasonable and unnecessary having due regard to the requirements of the business, and not consequently deductible under rule 12 of Schedule I of the Excess Profits Tax Act ? " The High Court answered the question in the negative and against the order of the High Court, this appeal is preferred with leave under section 66A(2) and (3) of the Income-tax Act read with section 21 of the Excess Profits Tax Act. It is manifest that the assessees had not altered the method according to which their accounts were maintained. Year after year, they were paying tax provisionally assessed by the Sales Tax Officer on the turnover of the previous year subject to adjustment at the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the business........ " It is for the Excess Profits Tax Officer to decide whether the deductions claimed are reasonable and necessary having regard to the requirements of the business. But the reasonableness and necessity of the expenditure sought to be deducted in assessing excess profits tax liability must be adjudged in the light of commercial expediency. The payments made by the assessee's were in discharge of obligations imposed lawfully and were necessary for the proper conduct of the business. By section 10 of the Madras General Sales Tax Act, the assessees were obliged within 15 days from the date of service of the notice of assessment to pay tax and in default the amount was liable to be recovered as if it were an arrear of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done so, payments made cannot be regarded as either reasonable or necessary. Counsel says that in Kumaraswami Raja, In re, the Madras High Court has declared this scheme of taxation on provisional assessment ultra vires. But the reasonableness or the necessity of payments under rule 12, Schedule I of the Excess Profits Tax Act must be ascertained in the light of what may be regarded as commercially expedient and not on any legalistic considerations. It would not be expected of a businessman to start a litigation in respect of a tax which the Legislature of the State was competent to levy on the ground that the method devised for computing the tax liability was ultra vires. The tax was duly assessed and paid and the reasonableness and necess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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