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TMI Blog1984 (7) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... vide for sale tax. The Mysore High Court had held that Chunilal Pranjivandas Co. would not be liable to sales tax. Hence Chunilal Pranjivandas Co. had, therefore, to refund to the assessee that part of the sale/purchase price, which had earlier been retained by them. The assessee and Chunilal Pranjivandas Co. agreed that the amount should be kept as a deposit with the latter at current bank rate of interest. If a result of any change of law Chunilal Pranjivandas Co. was made liable to pay sales tax, the assessee was to pay equivalent amounts to Chunilal Pranjivandas Co. out of the deposit standing to the credit of the assessee with Chunilal Pranjivandas Co. Chunilal Pranjivandas also agreed to indemnify the assessee against paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ud 1, Samvat year 2025 and that for Samvat year 2021, will be refunded after Kartak Sud 1, Samvat year 2026 and so on. "The party of the first part authorises the party of the second part to make payment of any such tax, interest or penalty, which they might be asked to pay as a result of any change in law, rules or issue of any Ordinance or Notification from the deposit lying with them, as provided in cl. (1) or any other amount that may otherwise be due from the party of the second part to the party of the first part. If for any reason whatsoever the party of the second part cannot recover the amount of tax, interest or penalty that they might be asked to pay, the party of the first part jointly and severally undertakes to indemnify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax. The CIT(A) found that for the asst. yr. 1975-76, a sum of Rs. 2,061 related to the assessee's own liability. For the year 1976-77, the assessee's own liability was Rs. 3,913. The allowability of the rest, viz., Rs. 18,457 for 1975-76, Rs. 42,842 for 1976-77 and Rs. 1,33,853 for 1977-78 was considered by the CIT(A). The relevant extracts form his order for 1975-76 are given below: "As regards the balance of Rs. 18,457, the facts of the case are that there was refunds of the sales tax for the asst. yrs. 1959-60 to 1962 and the same ws demanded back by the Commercial Tax Officer, in view of the Amendment Act 28 of 1969. The appellant paid these amount to the Sales Tax Department during the years 1974 to 1977. The claim for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Chunilal Pranjivandas Co. was retained by it, but as a deposit on behalf of the assessee subject to the discharge of any further sales tax liability that might arise. Such a contingency arose during the relevant years of account. The credit not received by the assessee was bifurcated into the amounts receivable towards sales effected in various years and were taxed as per the directions of the Tribunal in its order in IT Appeal No. 318 (Bang) of 1979. The agreement between the assessee and Chunilal Pranjivandas Co. stipulated that the liability was to be met out of the sum of Rs. 3,24,065. Therefore, the obligation on the part of the assessee to pay sales tax that would ultimately be payable by Chunilal Pranjivandas Co. was co-exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now to discharge. Since Chunilal Pranjivandas Co. had to pay sales tax, it would have deducted the corresponding amount from the amounts it had to pay to the assessee. At the time the agreement was entered into, there was no sales tax liability. Therefore, part of the sale proceeds of the assessee was treated as a deposit on favour of the assessee and retained by the purchaser. In case of any liability arising in future, that had to be adjusted against the deposits held. In other words, the assessee would, ultimately, receive that amount held in deposit less the tax liabilities that might arise in future. The fact is that such a liability did arise in view of the amendment to s. 28 of the Karnataka ST Act. It is that liability which the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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