Income Tax Appellate Tribunal - Cochin
A.M. Moosa vs Wealth-Tax Officer on 30 September, 1988
Equivalent citations: [1989]29ITD339(COCH)
ORDER
A.V. Balasubramanyam, Judicial Member
1. These proceedings relate to wealth-tax assessments of the assessee for the years 1979-80 and 1980-81.
2. The assessee was doing business of exporting marine products. In respect of that business, a sum of Rs. 17,06,819 was shown as liability towards purchase tax payable as on 31-3-1979. This provision had been made in the books of account towards purchase tax for the years 1976-77 and 1977-78. For certain reasons, the Wealth-tax Officer did not accept the claim and he added the same to the net wealth in the assessment for 1979-80. In the assessment for 1980-81, the provision made for the same reasons, was Rs. 6,43,499. This was added to the net wealth in the assessment year 1980-81.
3. The assessee has an imported car (Toyota make) in respect of which he claimed exemption under Section 5(1)(viii). The Wealth-tax Officer held, for both the years, that the exemption was not admissible.
4. The assessee had received industrial subsidy of Rs. 1,20,407, during the assessment year 1979-80, and Rs. 2,37,291, in the next assessment year, which he claimed to be not includible in the net wealth. The Wealth-tax Officer rejected the claim.
5. Aggrieved by the assessments, the assessee had appealed. The appeals were disposed of by a common order dated 9-8-1985. With regard to the provision made in respect of purchase tax, the CWT(A), for some reason, held that the liability for 1979-80 was only to the extent of Rs. 6,43,499 and he held that Rs. 10,63,320 can only be included in the net wealth for that year. He also held that Rs. 6,43,499 will be the liability or debt owed for the assessment year 1980-81. In regard to the other two grounds relating to exemption in respect of the foreign made car and industrial subsidy, the CWT(A) confirmed the orders of the Wealth-tax Officer. The assessee got a partial relief in the first appeal.
6. W.T.A. Nos. 128 and 129/Coch/85 are appeals by the assessee wherein grounds are raised to challenge the findings recorded by the CWT(A) against him. The three grounds will be considered by us in seriatim.
7. W.T.A. Nos. 151 and 152/Coch/85 are appeals by the revenue to object to the partial relief granted by the OWT(A) in respect of purchase tax liability. The assessee has filed cross-objections and the grounds raised therein are the same as those set out in his appeals W.T.A. Nos. 128 and 129/Coch/85. In fact, the cross-objections were not necessary in view of the substantive appeals he had filed earlier.
8. Principally the appeals by the assessee and the cross-objections define three questions to be resolved. The first one is in regard to liability claimed towards purchase tax, in respect of which a provision had been made in the books* of account. There is no dispute that out of the total amount of Rs. 17,06,819, Rs. 10,69,034 related to the provision made for 1978-79 and Rs. 6,37,786 was the purchase tax provision made for the earlier year. Section 5(3) of the Central Sales Tax Act had been amended with effect from 1-4-1976, whereby purchases made in the course of and for the purpose of export were exempt from purchase tax. The assessee was purchasing marine products essentially for the purpose of export. According to the revenue, in view of the decision of the Kerala High Court in the case of Dy. CST, Board of Revenue v. Neroth Oil Mills Co. Ltd. [1949] 49 STC 249 and the judgment of the Supreme Court in the case of Sterling Foods v. State of Karnataka [1986] 63 STC 239 there was no liability at all to make a provision for purchase tax. There was some uncertainty whether there could be a levy under the Kerala General Sales Tax Act. To obviate the situation, the Government of Kerala has, by its notification dated 29-3-1979, declared that under the State Act the purchase of marine products during the period 1-4-1977 to 31-3-1979 was exempt subject to the conditions that tax already paid shall not be refunded, but will be adjusted towards future tax liability. This notification was published in the Kerala Gazette on 3-4-1979 and was available to public from that day onwards.
9. According to the learned representative for the assessee, the exemption under Section 5(3) of the Central Sales Tax Act is available only when the assessee establishes the conditions laid down therein and that till such a situation arises, there would be an existing liability. It was also stated that the notification issued by the Kerala Government although is dated 29-3-1979 was available to the general public only from 3-4-1979 and as such, it is effective from that day onwards. In this connection, he relied upon the decisions of the Tribunal in the cases of S. Ratnam Pillai v. ITO [1984] 9 ITD 376 and S. Ratnam Pillai v. ITO [1987] 20 ITD 578. The same question had also been considered by the Tribunal in the case of the assessee for the assessment year 1978-79 (W.T.A. No. 196/Coch/84) wherein all these submissions have been considered. The Tribunal held in favour of the assessee and it has been summed up as follows :
The assessee will be entitled to exemption from purchase tax by-virtue of Section 5(3) of the CST Act only when it is able to show that the assessee had purchased the goods for the purpose of fulfilling the existing contracts for export. Until then it cannot be said that the assessee is not liable to pay purchase tax. In the present case only on 30-6-1983 when the final assessment for the sales tax assessment year 1977-78 was revised, exemption was granted under Section 5(3) of the CST Act in respect of the opening stock of prawns held on 1-4-1977. Till then the liability for purchase tax existed. Under these circumstances, we hold that the assessee is entitled to a deduction of the liability of Rs. 17,06,819 as shown in the balance sheet of Bharat Sea Foods as on 31-3-1978 from the wealth of the assessee for the assessment year 1978-79.
10. The same arguments were also pressed before us on behalf of the assessee to have us hold that liability, as per the provision made, existed on the relevant valuation dates and that relief must be given to full extent. The learned departmental representative relied upon the decision of the Tribunal in the case of Geo Sea Foods v. ITO [1988] 24 ITD 175 wherein deduction of the provision made for purchase tax in a business of purchase and export of marine products was held to be not available under Section 37(1) of the Income-tax Act and it is pointed out therein that there was no liability existed to pay sales tax. The authority under the Sales Tax Act has, by an assessment dated 23-8-1982, held that the exemption under Section 5(3) of the Central Sales Tax Act was available to the assessee and he has been accordingly given relief in the sales tax assessment. As per that assessment, no amount was payable as purchase tax. The departmental representative contended that on the ratio of the decision of the Supreme Court in the case of CWT v. K.S.N. Bhatt [1984] 145 ITR 1, the liability, if any, as decided in the assessment, though made subsequent to the valuation date, would flash back to the relevant valuation date and in this case the liability would be zero in view of the sales tax assessment made on 23-8-1982. Thus, according to him, the liability would be illusory.
11. It is true that the assessee's claim has been accepted by the Tribunal for the earlier assessment year 1978-79. It is really not necessary to go into the question whether the assessee could seek any assistance by the fact that the notification issued by the Kerala Government dated 29-3-1979 was actually published in the Official Gazette on 3-4-1979 although in passing we may mention the decisions of the Tribunal in the case of S. Ratnam Pillai v. ITO [1984] 9 ITD 376 and S. Ratnam Pillai v. ITO [1987] 20 ITD 578 support the claim of the assessee. But there is some fresh material in this case to reconsider the issue. When the case of the assessee was decided earlier, the assessment order passed under the Sales Tax Act was, as we see, not present. The effect of such an assessment in the light of the decision of the Supreme Court in the case of K.S.N. Bhatt (supra) is required to be examined for the Tribunal had not earlier considered the said Supreme Court decision in the case of K.S.N. Bhatt (supra).
12. The sales tax assessment dated 23-8-1982, pertaining to assessment year 1976-77 shows that the claim for exemption under Section 5(3) of the Central Sales Tax Act was allowed in full. It was argued on behalf of the assessee that exemption is not automatic and that the assessee has to fulfil the conditions specified in the said provision. It is not as though liability exists the moment the purchase is made and that this liability is wiped off by the assessment order passed by the Sales Tax Officer in the event of the assessee fulfilling the conditions. Fulfilling the conditions is only to show before the taxing authority that his case is one covered by Section 5(3) and that there is no liability. In fact, in respect of every exemption, the assessee has to show how the exemption could be extended. So is the case even in the case of an income-tax or wealth-tax assessment. Therefore, if a particular thing is exempt under the taxing statute, that exemption was available not because of the order but because of the existence of certain facts and circumstances which would bring a case within the exempting provision. Therefore, all that the assessee has to show is that his case is one where there was no liability. By establishing the conditions specified in Section 5(3) of the Central Sales Tax Act, the assessee demonstrated that there was no liability and this is recognised by the Assessing Officer in the assessment. The assessment, in effect, only shows that there never existed a liability. If the liability crystallised on the relevant valuation date though determined by an assessment subsequently made to the valuation date as pointed out by the Supreme Court in the case of K.S.N. Bhatt (supra), then, on the same analogy, the non-tax liability (towards purchase tax) determined by the assessing officer would show that there was no real liability as on the relevant valuation date. When the Assessing Officer under the Sales Tax Act hold that there was no liability to tax, it would be fallacious to allow a fictitious liability made on the basis of an apprehension that exemption under Section 5(3) of the Central Sales Tax Act may not be granted. In the first place, as we see, there was no statutory liability. There was no demand by the sales tax department. The provision had been made merely on an apprehension and, if at all, the liability was only a contingent one. In such a situation, the liability cannot be allowed on the basis of a provision made. For these reasons, we hold that the liability claimed by the assessee cannot be allowed and the CWT (A) was not correct in giving even a partial relief. While reversing the finding of the CIT (A) we restore the additions made by the Wealth-tax Officer in the two assessments. We accordingly hold on the first issue relating to purchase tax liability.
13. The second ground relates to the inclusion of the value of the foreign made Toyota car. This is shown in the balance sheet as a business asset. The argument on behalf of the assessee was that it had been included in the balance sheet only to present a rosy picture to the bank and that it was a personal car. It was also stated that no depreciation had been claimed in respect of this car. The reply of the revenue was that this asset being one of foreign make depreciation was not allowable under the law and, therefore, a claim had not been made. We accept this submission made on behalf of the revenue. When the car has been treated as a business asset in the balance sheet, there is no justification to treat the same as a personal asset under Section 5(1)(viii), WT Act. The authorities below had rightly held it to be a taxable asset.
14. The last ground relates to industrial subsidy received by the assessee which the authorities below have included in the net wealth. This very issue had been considered by the Tribunal in the case of the assessee for the assessment year 1978-79 in WTA No. 98/Coch/84. The fact situation is admittedly the same. Following the reasons given by the Tribunal in the earlier order for 1978-79, we reject the claim of the assessee and uphold the finding of the CWT (A) in this regard.
15. The grounds raised by the revenue in its appeals stand considered by the discussion made by us in paragraphs 8 to 14. Similarly the grounds raised in the cross-objections also stand disposed of while considering the substantive appeals filed by the assessee.
16. In the result, the appeals by the assessee are dismissed. The appeals by the revenue are allowed. The related cross-objections, filed by the assessee, are dismissed.