Punjab-Haryana High Court
Commissioner Of Income-Tax vs Ram Chand Kanshi Ram on 10 May, 1989
Equivalent citations: [1989]180ITR114(P&H)
JUDGMENT Gokal Chand Mital, J.
1. The assessee was maintaining the mercantile system of accounting. Liability to pay sales tax during the period relevant to the assessment years 1969-70, 1970-71 and 1971-72 accrued every month on the monthly turnover. It was not debited in the account books nor was deduction claimed in those years. For the aforesaid years, sales tax was actually paid during the period relevant to the assessment year 1977-78 and the assessee claimed deduction thereof in that year. The Income-tax Officer allowed deduction on the basis of the decision of the Madras High Court in CIT v. Krishnan (V.) [1980] 121 ITR 859.
2. The Commissioner of Income-tax initiated proceedings under Section 263 of the Income-tax Act, 1961 (for short "the Act"), in view of the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, as the order of the Income-tax Officer was prejudicial to the interests of the Revenue, as in view of the aforesaid decision of the Supreme Court, deduction for the liability to pay sales tax, which accrued during the period relevant to the assessment years 1969-70, 1970-71 and 1971-72, could not be allowed as a deduction in the assessment year 1977-78". As a result, he set aside the order of the Income-tax Officer and held that the deduction was not allowable.
3. Against the aforesaid order, the assessee went up in appeal before the Income-tax Appellate Tribunal, Delhi (hereinafter referred to as "the Tribunal"). The Tribunal followed the decision of the Gauhati High Court in CIT v. Nathmal Tolaram [1973] 88 ITR 234, and allowed relief to the assessee. The Tribunal has referred the following two questions for the opinion of this court at the instance of the Revenue :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the order of the Income-tax Officer cannot be considered to be erroneous in so far as it is prejudicial to the interests of the Revenue ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in vacating the order of the Commissioner of Income-tax passed under Section 263 of the Income-tax Act, 1961, and restoring the order of the Income-tax Officer ?"
4. This court in CIT v. United India Woollen Mills [1981] 132 ITR 457, dissented from the view of the Gauhati High Court in Nathmal Tolaram's case [1973] 88 ITR 234, and held on somewhat similar facts that the purchase tax liability relating to the assessment year 1967-68 for which demand notice was served on the assessee on April 27, 1970, was not an allowable deduction in the assessment year 1971-72 as the assessee was following the mercantile system of accounting.
5. We had also occasion to deal with this matter in Income-tax Reference No. 56 of 1983 (CIT v. Aggarwal Rice and General Mills [1989] 180 ITR 29, decided on April 26, 1989), and followed the decision in United India Woollen Mills' case [1981] 132 ITR 457 (P & H), and on identical facts held that the deduction could not be allowed when the tax was quantified or paid but is allowable when the liability accrues as the assessee follows the mercantile system of accounting. In V. Krishnan's case [1980] 121 ITR 859 (Mad), a view to the contrary has been taken. We dissent from that view.
6. Accordingly, following our decision and for the reasons recorded therein, we answer both the questions in favour of the Revenue, in the negative. However, there will be no order as to costs.