9911796707
TMI Blog1985 (11) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred or any contract entered into by, to, with or on behalf of the aforesaid partnership and the goodwill, if any, of such business." Article 2 of the Articles of Association of the assessee read as under: "2. The business and assets specified in the schedule hereto shall belong to and become the property of the company and having regard to the obligations imposed and liabilities on the company by these presents shall be taken at their net book value and the shares to which the parties hereto are to be entitled as aforesaid shall be deemed by fully paid up by means of the net asset so brought it." The schedule to the Articles, among others, includes the following: "Cash money Bank balance, Book debts, claims, receivables, securities, investments, deposits, stocks and other assets whether mentioned or not, at 82/2, cooperganj, Kanpur and Kejriwal Flour Mills, Gorakhpur or at any other office or offices of the said New Cownpore Flour Mills, any where in India." 2. The firm whose business was taken over by the assessee had paid sales tax. The levy was contested in appeal first by the firm itself and subsequently by the present company. However, the assessee succeede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowance had already been granted, liable to tax under s. 41 (1) in respect of he amount remitted and received by the successor or the legal representative. This principle squarely applies to the present case. The present assessee, who was sought to be taxed was not the assessee contemplated under the above section. it was the firm of New Cownpore Flour Mills, which had paid the tax while the refund has been received by the assessee, which is a successor to the firm. A similar view was taken by the Allahabad High Court in Motilal Sons vs. CIT (1975) 101 ITR 177 (All). The decision of the Supreme Court stated above was followed in this case. It was half that s. 10 (2A) of IT Act, 1922 corresponding to s. 41 (1) of the Act of 1961 can be applied only if two conditions are satisfied, firstly, it must be shown that an allowable for deduction has been made in the assessment in respect of a loss, expenditure or trading liability, and secondly, the same assessee must have received the amount allowed in respect of such loss, expenditure or trading liability. The successor in business or a legal representative of the assessee to whom the allowance has been granted, is not liable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities and assets as well as the litigation of the proprietary concern were taken over by the assessee firm. In the circumstances, it is not open to the assessee to raise the aforesaid contention and on merits also it has no substance." These observations no doubt have thrown some doubt on the view expressed earlier. A similar view was expressed by the Allahabad High Court in the case of T. N. Shah (P) Ltd. vs. Addl. CIT (1979) 9 CTR (All) 207 : (1978) 120 TIR 354 (All). The observation of the Court appear at p. 357 of the report as under: "If in a given case, the income of a business is computed by taking into account certain debt, it does not appear reasonable that in the absence of any statutory prohibition, allowance on account of the debt having become bad should be denied only because the assessee's identity is changed, though the identity of the business continues." However, keeping in view the decision of the Supreme Court in (1971) 82 ITR 624 and the decision of the Allahabad High Court reported in (1975) 101 ITR 177 (All), which specifically dealt with the question of taxability under s. 41 (1) of the Act, we hold that the assessee is not liable to tax on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs. CIT (1943) 11 ITR 504 (Cal). Here, the assessee-company had taken over the business of a firm. It was held that the assessee was the successor to the firm. 10. In view of the above authorities, there is no escape from the conclusion that the present is the case of a succession by the assessee to the business of the firm. It is not a case of discontinuance of the business. As such the provisions of s. 176 (3A) cannot be applied in order to bring to tax the refund of the sales tax in the assessment of the assessee. 11. We will now deal with s. 170 (1)(b) of the Act which has also been relied on by the CIT(A) for assessing the above amount. In our opinion, the application of this section is misconceived, It is a machinery section. It lays down the procedure where there is succession of business of one person by another person. The section says that the predecessor shall be assessed in respect of the income of the previous year in which the succession took place upto the date of succession and the successor shall be assessed in respect of the income the previous year after the date of succession. Unless the amount is held to be the income of the previous year, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business of the previous year in which such sum is actually paid by the assessee. In other words, the above amount according to the ITO is liable to be allowed only in the assessment year in which it is actually paid. Since it was not paid in the asst. yr. 1984-85, when s. 43B is applicable, he was of the opinion that the assessee was not entitled to its deduction. The assessee contended that the above section did not apply to its case as it related only to a sum 'payable' by the assessee by way of tax. It was submitted before the assessee that since the amount was not payable to the sales tax Department upto 30th June, 1983. i.e. upto the end of the assessment year under appeal, provisions of s. 43B had no application and its allowability did not depend upon its actual payment. This contention was rejected by the ITO following the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC). His view was upheld by the CIT(A). The latter also observed that even otherwise the sales tax was a revenue receipt in the light of the decisions already cited in our this order. 15. The assessee is now in appal before us. In our opinion, the interfer ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
