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TMI Blog1983 (3) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... to be kept for a period of four years. In view of that, the assessee-company furnished bank guarantee in respect of Rs. 1,37,51,682 which was accepted by the coffee board. This was claimed as a deduction for this year. The ITO sent the draft assessment order to the IAC. The IAC by his order dated 20-3-1982 gave directions. He held therein that in the writ petition filed by the exporters in the Supreme Court challenging the coffee board's circular dated 7-2-1977, the Supreme Court by its judgment dated 15-4-1980 held that there was no liability on the part of the individual exporters towards sales tax and the circular requiring the exporters to make deposit or furnish bank guarantee was struck down. When the Supreme Court by its order dated 15-4-1980 declared that certain liabilities resulting from a circular order of the coffee board to be invalid, it does not mean that these liabilities existed from 7-2-1977 when the circular order was issued till 15-4-1980 when the Court passed the order quashing the circular order. It really means that the liability has never existed despite the circular as the circular has been held to be invalid. The Supreme Court decision made it clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (Appeals) allowed the liability in respect of Rs. 18,583 being item No. 3 and disallowed the balance. He held that a perusal of the coffee board's circular clearly shows that in respect of items coming under category 1 the coffee board was not collecting any sales tax, but only contingency deposit or a bank guarantee. The coffee board did not demand sales tax in respect of items coming under category 1. It only demanded security deposit or a bank guarantee. In such an eventuality, the question of deducting the liability does not arise because there was no liability at all. The liability, if any, would have arisen if and when the coffee board forfeited or adjusted the deposit on the happening of the contingency for which it was intended. It has not happened during the accounting year. Hence, the question of deducting the sum of Rs. 42,61,691 in computing the income of the assessee does not arise. Dealing with the sum of Rs. 24,70,598 coming under category 2, he held that the view of the coffee board that they were liable to sales tax has not found favour with the Supreme Court by its judgment dated 15-4-1980. Thus the sum of Rs. 24,70,598 represented the provision for a non-exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 5. When is a sale or purchase of goods said to take place in the course of import or export --- (1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India. (2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. (3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for, or in relation to such export. " " 6. Liability to tax on inter-State sales.---(1) Subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontingent deposits or furnish bank guarantees out of abundant caution inasmuch as such requirement would be unnecessary. The Supreme Court held as under : " . . . Section 5(3), quoted above in extenso, has obviously been enacted to extend the exemption from tax liability under the Act not to any kind of penultimate sale but only to such penultimate sale as satisfies the two conditions specified therein, namely, (a) that such penultimate sale must take place (i.e., become complete) after the agreement or order under which the goods are to be exported and (b) it must be for the purpose of complying with such agreement or order and it is only then that such penultimate sale is deemed to be a sale in the course of export...." It was further observed that the 'agreement' means the agreement with the foreign buyer and not the agreement with a local party containing the covenant to export. Then the Supreme Court held that in the penultimate sales the property in the coffee sold passes to the buyer upon payment of price, weighment and setting apart of the coffee sold for delivery to the buyer. It was observed as under : " Having regard to the above discussion it is clear to us that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) the assessee has classified the sales into two categories : (a) purchases which were covered by export contract on hand at the time of the participation in the export auction ; and (b) purchases which were not covered by an export contract on hand at the time of exporters participating in the auction but were covered by an export contract on hand at the time of payment of full price, weighment and setting apart of coffee for delivery to the buyers under clauses 19 and 20 of the auction conditions. It was also pointed out before him that to the extent of Rs. 42,61,690 would come under category (a) and to the extent of Rs. 24,70,598 would come under category (b). The above position has not been disputed before us also. It is clear that both the above two types come under section 5(3) and as such there is no liability for sales tax. The decision of the Supreme Court in Consolidated Coffee Ltd.'s case, though delivered on 15-4-1980, is applicable to the assessee even for the assessment year 1979-80. The said decision of the Supreme Court amounts to declaration of law and binding on all Courts as contemplated by Article 145 of the Constitution and that would be the law of the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction. Thus, a contingent liability cannot be allowed at all. 7. In Indian Molasses Co.'s case, it was observed as under : ". . . Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income-tax laws do not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in praesenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter. The case which illustrates this distinction is Peter Merchant Ltd. v. Stedeford [1948] 30 TC 496. No doubt, that case was decided under the system of income-tax laws prevalent in England, but the distinction is real. What a prudent trader sets apart to meet a liability, not actually present but only contingent, cannot bear the character of expense till the liability becomes real. " Thus, it is clearly, held that a contingent liability cannot be deducted. 8. In Senthikumara Nadar's case it was held that the deductions are not permissible for anticipated losses o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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