Punjab-Haryana High Court
Commissioner Of Income-Tax vs Guranditta Mal Shanti Parkash Zira on 21 November, 1985
Equivalent citations: [1987]164ITR774(P&H)
JUDGMENT S.P. Goyal, J.
1. The assessee, a partnership firm engaged in the business of purchase and sale of rice and paddy, was required to file quarterly returns of its turnover under the Punjab General Sales Tax Act, 1948 (for short called "the Act"). The firm filed the return for the financial year 1968-69 and claimed exemption under Section 5(2)(a)(vi) of the Act from the payment of purchase tax on the purchase of paddy amounting to Rs. 28,13,801.41 which was rejected and the District Excise and Taxation Officer, by his order dated July 2, 1969, assessed the purchase tax payable at Rs. 84,765.44. On appeal, the realisation of the tax was stayed on the assessee's depositing Rs. 10,000, vide order dated September 9, 1969. When they were served with a notice for payment of the remaining amount of Rs. 74,765.44, they filed a petition under article 226 of the Constitution of India for quashing the assessment order, but the same was dismissed on January 19, 1970. The letters patent appeal filed by them was dismissed on October 28, 1970, and the special leave petition in the Supreme Court on March 25, 1971.
2. The amount of Rs. 10,000 referred to above was deposited on September 15, 1969, and the remaining amount on November 9, 1970. The entry in the account books of the assessee regarding these amounts was made on November 16, 1970. In respect of the purchase tax liability for the financial year 1969-70, they deposited an amount of Rs. 1,11,453.42 on January 30, 1970, but did not claim its deduction in the profit and loss account relating to the assessment year 1970-71. It was in the assessment year 1971-72, for which the relevant accounting period was the financial year 1970-71, that the assessee claimed the deduction of both the amounts apart from the purchase tax paid during this financial year. The assessing authority disallowed the deductions, but its order was reversed on appeal by the Appellate Assistant Commissioner. Aggrieved thereby, the Revenue approached the Tribunal but failed.
3. On an application moved under Section 256(1) of the Income-tax Act, the following question has been referred to this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was entitled to the deduction of purchase tax liability relating to. the assessment years 1969-70 and 1970-71 from the income of the assessment year 1971-72."
4. At the outset, learned counsel for the Revenue contended that, according to the finding recorded in the statement of the case, the assessee was by and large following the mercantile system of accounting and, as such, the Tribunal had erred in law in observing in the latter part of its order that the assessee was following a mixed system depending on the exigencies of the situation. According to learned counsel, the assessee is not entitled unilaterally to change the system of accounting usually followed by him. Reliance, for this contention, was placed on a decision of the Allahabad High Court in Shiv Prasad Ram Sahai v. CIT [1966] 61 1TR 124, wherein it was observed that if the assessee has once chosen the mercantile system for a transaction and has regularly employed that system, it is not open to him unilaterally at any time during a subsequent accounting year to change that system. With due respect to the learned judges, we are unable to subscribe to this view. All that Section 145 of the Act provides is that the income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee, and it nowhere provides that if an assesses followed a particular system of accounting during any year, he cannot change the same for any subsequent year unilaterally. So far as this court is concerned, in Salig Ram Kanhaya Lal v. CIT [1982] 133 ITR 915, a Division Bench not only recognised the right of a trader to adopt either one or the other system of accounting, but went to the extent of laying down that there may be a situation when some peculiar business transactions may not admit of one or the other form of accounting and in such a situation, the assessing authority should look at the substance of the situation and decide the matter in such a manner that neither the Revenue is put to some unreasonable loss nor is the assessee subjected to any unreasonable hardship. In that case, although the assessee employed the mercantile system of accounting, still it was held that the Tribunal was not right in holding that the amount under the decree accrued to the assessee when the decree was passed in its favour instead of the date when it was actually received. Respectfully in agreement with the rule laid down in this case, we overrule the contention of learned counsel.
5. It was next contended that in the face of the fact that the assessee did not dispute that he was employing the mercantile system of accounting, there was no material on record for the Tribunal to hold that the assessee was following a mixed system depending on the exigencies of the situation. We are afraid it is not open to learned counsel for the Revenue to go behind the statement of the case when neither the finding of the Tribunal as to the system of accounting followed by the assessee has been challenged nor any question in this regard has been referred. The decisions relied upon by him, such as Reform Flour Mills P. Ltd. v. CIT [1981] 132 ITR 184 (Cal) and CIT v. United India. Woollen Mills [1981] 132 ITR 457 (P & H) are also of no help to him because all those decisions proceed on the basis that the assessee was following the mercantile system of accounting. Had that been the finding here also, the assessee would not have been able to deduct the amount of sales tax paid in any other year than the one in which the liability accrued. On the contrary, the finding recorded is that the assessee was following a mixed system of accounting depending on the exigencies of the situation, so far as his tax liability was concerned. We, therefore, find no merit in this contention as well.
6. Lastly, it was contended that the assessee may be able to claim deduction of Rs. 84,765.44 out of which Rs. 10,000 were deposited under the order of the appellate court on September 15, 1969, and the remaining amount on November 9, 1970, but he cannot claim any deduction qua the other amount of Rs. 1,11,453.42 which was deposited on January 30, 1970, even if it may be held that he was following a mixed system of accounting. The argument seems to be unassailable. Whether the system of accounting was cash or mercantile or a mixed one, the assessee was bound to claim the deduction in the assessment year 1970-71, as the amount had actually been paid in the accounting year relating to the said assessment year. However, learned counsel for the assessee, relying on Salig Ram Kanhaya Lal's case [1982] 133 ITR 915 (P& H), contended that as the question of liability of payment of purchase tax had not been finally settled till October 28, 1970, when the letters patent appeal was dismissed and the matter being in a fluid stage, the assessee did not think it necessary to debit the amount in the balance-sheet of the accounting year 1969-70. The fact that the assessee did not think it necessary in the accounting year in which it was paid to debit the amount, does not clothe him with any right under the law to debit that amount in any subsequent year. As noticed above, even in Salig Ram Kanhaya Lal's case [1982] 133 ITR 915 (P & H), the amount was said to have accrued to the assessee in the year in which it was received and not in any subsequent year. That decision, therefore, has no bearing on the facts and circumstances of the present case. Learned counsel for the assessee could not cite any other case in which the assessee may have been allowed to claim the deduction in any accounting year subsequent to the one in which it was actually paid. The right to deduct the amount in a particular year has to be determined, according to the system of accounting employed by the assessee, and the fact that the liability was still under challenge in the judicial courts has no bearing. The Tribunal, therefore, was not right in law in allowing the deduction of Rs. 1,11,453.42 on account of purchase tax in the assessment year 1971-72 and to that extent, the question is answered in the negative, i.e., in favour of the Revenue and against the assessee. As regards the deduction of the purchase tax liability relating to the assessment year 1969-70, the question is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. However, we cannot help observing that as the assessee had, in fact, paid the purchase tax amount, we have every hope that the Income-tax Officer would consider their case sympathetically if approached under Section 154 of the Act and relieve the assessee of the hardship likely to be caused to them by our judgment. No costs.