SATISH CHANDRA J. - The assessee is a registered firm carrying on business in cloth at Bareilly. Up to the assessment year 1960-61, the assessment was completed in the status of the Hindu undivided family, which consisted of seven members, including its karta, Banwari Lal. On March 31, 1960, there was a partial partition in regard to the family business which was taken over by three members only, namely, Banwari Lal, karta, Madan Mohan and Ghanshyam. A partnership firm consisting of these three as partners continued the business.
The balance-sheet of the Hindu undivided family as drawn on March 31, 1960, consisted of a number of assets and liabilities including a credit balance of Rs. 25,230 in respect of provision of sales tax liability of the Hindu undivided family.
The assessment of the business of the partnership firm was completed in the status of a registered firm in the years 1961-62 onwards.
In respect of the assessment year 1962-63 the firm claimed deduction of Rs. 11,484 on account of payment of sales tax dues. The relevant facts in this respect were that assessment orders under the Sales Tax Act in respect of the assessment years 1954-55 to 1957-58 were completed by the Sales Tax Officer by an order dated March 31, 1961. The sales tax liability for all these years was computed at Rs. 1,23,518.
The partnership firm went up in appeal. The appellate authority reduced the amount of tax by Rs. 39,110. Thereafter, the firm prayed for and was granted instalments to pay the amount of sales tax. An amount of Rs. 36,714 was paid by the firm in the financial year 1961-62, relevant to the assessment year 1962-63. Since there was already provision in the account books on the firm of Rs. 25,230 in respect of sales tax liability the firm claimed a deduction of Rs. 11,484 in income-tax proceedings for the assessment year 1962-63. The claim was ultimately allowed by the Tribunal, against which the department came in reference to this court in Commissioner of Income-tax v. Banwari Lal Madan Mohan : 110ITR868(All) . It was found that both the Hindu undivided family as well as the partnership firm were carrying on business in the mercantile system of accounting. It was further found that the quantification of the sales tax liability was made in the year relevant to the assessment year in question in that case, namely, 1962-63. It was further found that the partnership firm had taken over all the assets and liabilities of the Hindu undivided family, and, therefore, it also took over the liability to pay the sales tax. The Bench observed (page 870) :
'The liability for sales tax was quantified when the order was passed in appeal as a result of which the assessee made payment of Rs. 36,714 in the financial year in question.'
The crux of the finding was that the quantification, which was ultimately done by the order in appeal, was in fact made in the financial year relevant to the assessment year 1962-63.
The Bench laid down the proposition of law (page 871) :
'...... inasmuch as the Hindu undivided family had been following the mercantile system of accounting and making provision for the tax only on estimate basis, it was in the year in which it was quantified finally that the actual liability for sales tax was finally determined. The excess amount over that for which provision had been made thus undoubtedly accrued in the year in which it was finally quantified. The quantification took place in the financial year relevant to the assessment year 1962-63.'
It is thus evident that the Bench held that the quantification finally took place in the financial year relevant to the assessment year 1962-63. It is further evident that this quantification related to all the assessment years 1954-55 to 1957-58. It is no ones case that the quantification which was finalised then was subsequently re-finalised in the financial year relevant to the assessment year now in question, namely, 1963-64.
Even if the view of law expressed by the Division Bench be taken as correct, it is inapplicable to the present reference, which is for the assessment year 1963-64. We have read the judgment of the Division Bench carefully, but we do not find that the fact of making payment of one instalment was at all taken as a material circumstance in determining the date of quantification of liability. Hence, the fact that one instalment was paid in the financial year relevant to the assessment year 1963-64 is entirely immaterial.
For the assessment year 1963-64, the Tribunal has referred the following question of law for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the amount of Rs. 21,704 paid as sales tax by the assessee was not allowable as a deduction in computing the income for the assessment year 1963-64 ?' The sum of Rs. 21,704 was one of the instalments that was paid by the assessee during the financial year relevant to the assessment year 1963-64. In view of the above discussion it is evident that the quantification of the liability of sales tax was made much earlier, and not in the financial year relevant to the assessment year 1963-64. Hence, it was not an allowable deduction. The Tribunal was justified in refusing it.
The question referred to us is answered in the affirmative, in favour of the department and against the assessee. However, in the circumstances, we make no order as to costs.