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Malwa Vanaspati and Chemical Company Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 42 of 1984
Judge
Reported in(1985)44CTR(MP)90; [1985]154ITR675(MP)
ActsIncome Tax Act, 1961 - Sections 256(1) and 256(2)
AppellantMalwa Vanaspati and Chemical Company Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateS.M. Jhavar, Adv.
Respondent AdvocateR.C. Mukati, Adv.
Excerpt:
- - that such a claim is not admissible is clearly held by the supreme court in the decisions referred to above, namely, chowringhee sales bureau p......2. the facts giving rise to this petition as per the assessee may be stated, in brief, thus : the assessee-company, the malwa vanaspati and chemical co. ltd., indore, is an incorporated limited company and carries on business of manufacturing vanaspati ghee, soap, oil, etc. on these items, sales tax is chargeable under the m.p. general sales tax act, 1958.3. in the bills which are issued for the sales of these commodities, the sales tax chargeable is shown separately and the amount so charged is credited in the account books of the company, according to the mercantile system in the name of sales tax account. this system of accounting has been followed by the company for the last so many years.4. the amounts so credited in the particular assessment year is paid from time to time as and.....
Judgment:

Mulye, J.

1. The applicant assessee, M/s. Malwa Vanaspati & Chemical Co. Ltd., Indore, has filed this reference application under Section 256(2) of the I.T. Act, 1961, with a prayer to direct the Income-tax Appellate Tribunal, Indore Bench, Indore, to draw up a statement of the case and refer the following questions of law, proposed by the applicant to this court for its opinion :

' 'A' Assessment year 1978-79 :

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the disallowance of the claim of sales tax at Rs. 16,914 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the sum of Rs. 16,914 as trading receipt ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that even in spite of following the mercantile system of accounting, the accrued liability of sales tax can be claimed on actual payment basis only ?'

' 'B ' Assessment year 1979-80 :

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the disallowance of the claim of sales tax of Rs. 14,459 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the sum of Rs. 14,459 as trading receipt ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that even in spite of following the mercantile system of accounting, the accrued liability of sales tax can be claimed on actual payment basis only ?'

2. The facts giving rise to this petition as per the assessee may be stated, in brief, thus : The assessee-company, the Malwa Vanaspati and Chemical Co. Ltd., Indore, is an incorporated limited company and carries on business of manufacturing Vanaspati ghee, soap, oil, etc. On these items, sales tax is chargeable under the M.P. General Sales Tax Act, 1958.

3. In the bills which are issued for the sales of these commodities, the sales tax chargeable is shown separately and the amount so charged is credited in the account books of the company, according to the mercantile system in the name of sales tax account. This system of accounting has been followed by the company for the last so many years.

4. The amounts so credited in the particular assessment year is paid from time to time as and when demand is made and the remaining amount remains in accounts credited to the Sales Tax Department.

5. The Income-tax Department had accepted these accounts for a number of years and did not include the amount standing in the sales tax account at the end of the accounting year in the income of the company and thus has been accepting the non-inclusion of that amount in the income of the company.

6. In the assessee's accounts, sums of Rs. 16,914 and Rs. 14,459 were shown as credited in the sales tax account for the assessment years 1978-79 and 1979-80, respectively. The assessing officer added back these amounts in computing the assessee's business income for the aforesaid two assessment years.

7. The Inspecting Assistant Commissioner of Income-tax (Assessment), Indore, for the assessment year 1978-79 for the period ending December 31, 1977, and for the assessment year 1979-80 for the period ending December 31, 1978, included Rs. 16,914 and Rs, 14,459 on account of excess sales tax collections. . The assessee went up in appeal and the CIT (Appeals) confirmed the decision of the assessing officer.

8. Against the finding of the CIT (Appeals), the assessee went up in appeal before the Income-tax Appellate Tribunal, Indore Bench, Indore, which also confirmed the said order. The applicant-assessee, therefore, made applications calling upon the Tribunal to draw up a statement of the case and refer the questions of law as proposed by the assessee to this court, which the Tribunal declined. Hence, this application.

9. Before the Tribunal, it was contended on behalf of the assessee, that since the obligation to pay sales tax arises the moment a dealer makes sales or purchases which are subject to the tax liability, even though the liability may not be enforced by the Sales Tax Department till the final quantification was effected by assessment proceeding arid, hence, the amount standing to the credit according to mercantile practice in the account books of the assessee ought not to be included in the income of the assessee, for which he relied on the decisions reported in CIT v. Kisandas Goverdhandas Dave and Co. : [1983]144ITR624(Bom) , Kedarnath Jute Mfg. Co. Ltd. v. CIT : [1971]82ITR363(SC) and Bhagwandas Jagdishprasad & Co. v. CIT : [1983]144ITR845(MP) . In addition, before us, he also cited the decisions reported as Deccan Hides & Skins Co. v. CIT : [1983]142ITR175(Bom) ; ITAT v. B. Hill and Co. P. Ltd. : [1983]142ITR185(All) ; CIT v. Rajeshwari Distributors (P.) Ltd. : [1980]125ITR618(Cal) ; CIT v. Royal Boot House : [1970]75ITR507(Cal) ; Poonam Chand Trilok Chand v. CIT : [1982]136ITR537(All) .

10. The income-tax authorities found that the amounts in question represent 'excess sales tax collections' arising out of following the method of accounting adopted by the assessee-company. It appears that the sales tax collected by the assessee-company from its customers is directly credited to an account described as 'sales tax account'. This account is debited as and when any sales tax is paid to the State Government. The assessee-company's contention before the CIT (Appeals) was that the sum represented an accrued liability which would be paid to the Sales Tax Department as and when it was quantified by way of sales tax assessment. The CIT (Appeals) did not accept this contention in view of the decisions of the Supreme Court in the cases of Chowringhee Sales Bureau P. Ltd. v. CIT : [1973]87ITR542(SC) and Sinclair Murray & Co. P. Ltd. v. CIT : [1974]97ITR615(SC) , where the court has held that the sales tax collected by a trader constitutes his trading receipts and that the payment made to the State Government either voluntarily or on the furnishing of the return or as a result of an assessment, have to be allowed as business expenditure. In this view of the matter, he sustained the disallowance of the assessee's claim for the assessment years 1978-79 and 1979-80.

11. Before the Tribunal, it was submitted that the assessee followed the mercantile system of accounting and as such the accrued liability on account of saxes tax which was ascertained has to be allowed. But relying on the decisions in CIT v. E.A.E.T. Sundararaj : [1975]99ITR226(Mad) and CIT v. Bird Co. & (P.) Ltd. : [1981]128ITR600(Cal) , that collections of sales tax constituted trading receipts and the liability to sales tax can be allowed only when it is paid to the Government, rejected this contention of the applicant.

12. The learned counsel for the assessee placed reliance on the decisions which were cited before the Tribunal and contended that as the amount collected by way of sales tax was required to be paid by the assessee to the Sales Tax Department, though periodically, the sum so credited in excess could not be included in the income of the assessee.

13. On the other hand, the learned counsel for the Revenue submitted that the assessee-company had not limited itself to showing the excess collections in the sales tax account as a liability, but has actually claimed it as a deduction in computing its income. That such a claim is not admissible is clearly held by the Supreme Court in the decisions referred to above, namely, Chowringhee Sales Bureau P. Ltd. v. CIT : [1973]87ITR542(SC) and Sinclair Murray & Co. P. Ltd. v. CIT : [1974]97ITR615(SC) and, therefore, the Tribunal declined to refer the question proposed by the assessee, in our opinion, rightly so, as they would be only academic and superfluous.

14. Thus, after hearing the learned counsel and after going through the case law cited and after considering the facts and circumstances of the case, we are of the opinion that the questions of law as proposed by the applicant do not arise. Therefore, we are unable to agree with the learned counsel for the assessee that questions of law as proposed by them do arise and the Tribunal should be called upon to draw up a statement of the case and refer the same to this court for its opinion.

15. In the result, the petition fails and is dismissed with no order as to costs.


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