Punjab-Haryana High Court
Commissioner Of Income-Tax vs Nuchem Plastics Ltd. on 22 November, 1996
Equivalent citations: (1998)144CTR(P&H)575
JUDGMENT
N. K. AGRAWAL, J. :
This is an application under s. 256(2) of the IT Act, 1961, by the CIT, Haryana, seeking a direction to the Tribunal, Delhi to refer the following question of law to this High Court for opinion :
"Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in holding that the CIT(A) had rightly deleted the additions of Rs. 85,50,443 as excise duty and Rs. 3,37,706 as sales-tax liability on the ground that, as per the decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. vs. CIT (1971) 82 ITR 363 (SC) the liabilities of Rs. 85,50,443 and Rs. 3,37,706 have to be allowed as a deduction to the assessee, ignoring the case of Chowringhee Sales Bureau vs. CIT (1973) 87 ITR 542 (SC) where Supreme Court has clearly held that the taxes collected by the trader should form part of its trading receipts and the deduction for the same would be allowed when the liability of tax is actually discharged ?"
2. The assessee-company manufactured synthetic and plastic goods. It showed a loss of Rs. 54,97,370 in its return. A revised return was, however, filed showing a loss of Rs. 45,40,850. The accounting year in respect of the asst. yr. 1982-83 ended on 30th September, 1981. The AO, during the course of assessment proceedings, noticed that an amount of Rs. 85,50,443 had been shown by the assessee in the balance sheet as the excise-duty liability. This amount had not been paid till 30th September, 1981 though deduction had been claimed. An amount of Rs. 3,37,706 also stood in the balance sheet as a liability on account of the amount of sales-tax payable by the assessee. This amount had been collected as part of the sale proceeds but had not been paid till the last date of the accounting year. The AO disallowed the claim of deduction in respect of excise duty on the ground that the liability had not been discharged by the assessee. Similarly, the amount of sales-tax collected as part of the sale proceeds, was treated as trading receipt and, since the amount had not been paid up to the last date of the accounting year, its deduction was not allowed.
3. Shri R. P. Sawhney, learned senior counsel for the Department, has argued that a question of law does arise from the Tribunals order, because the additions made by the AO were deleted by the CIT(A) and that appellate order was upheld by the Tribunal. Reliance is placed on a decision of the Supreme Court in CIT vs. Managing Trustee, Jalakhabai Trust (1967) 66 ITR 619 (SC), for the proposition that the High Court has only to consider whether a question of law, which may be supported by reasonable argument, arises out of the order of the Tribunal. It is contended that the amounts of excise duty as well as sales-tax, collected by the assessee, did constitute part of the revenue receipts and, therefore, should have been shown in the P&L a/c. Since neither of the two liabilities had been discharged, deduction could not be claimed for either of them. Therefore, a question of law is said to arise.
On behalf of the assessee, it is contended that the amounts of excise duty as well as sales-tax, collected by the assessee, even if treated as trading receipts, had to be allowed as deduction on account of accrual of the liability in the light of the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) This High Court also in Sirsa Industries vs. CIT & Anr. (1989) 178 ITR 437 (P&H), took similar view following the law laid down by the Supreme Court. Delhi High Court has also, in CIT vs. Bharat Carbon & Ribbon Mfg. Co. (P) Ltd. (1991) 192 ITR 221 (Del), taken the same view in regard to the liability of excise duty arising from a demand notice. Reliance has also been placed on a decision of this High Court in CIT vs. Lakshmi Printing Co. (1995) 211 ITR 172 (P&H) in support of the plea that a question of law cannot be said to arise simply on the ground that certain appeal, arising from a case, has been admitted by the Supreme Court.
So far as the question of trading receipts is concerned, the Supreme Court, in Chowringhee Sales Bureau (P) Ltd. vs. CIT (1973) 87 ITR 542 (SC) held that the amount of sales-tax, collected from buyers but not paid to the State, was in the nature of trading or business receipts in the hands of the assessee. In Addl. CIT vs. T. Naggi Reddy (1993) 202 ITR 253 (SC) this view has been reiterated by the Supreme Court.
4. From the facts emerging from the rival pleas of the parties, a question of law arises from the Tribunals order and the Tribunal is directed to state the case and refer the following question of law to this High Court for opinion :
"Whether, on the facts and in the circumstances of the case, disallowance of deduction of Rs. 85,50,443 as unpaid amount of excise duty liability and addition of Rs. 3,37,706 as the unpaid amount of sales-tax liability were rightly deleted ?"