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S. Ratnam Pillai Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Judge
Reported in(1984)9ITD376(Coch.)
AppellantS. Ratnam Pillai
Respondentincome-tax Officer
Excerpt:
.....purchase tax in accordance with the law prevailing on that date, that the assessee is entitled to claim deduction of this amount and that the fact that exemption was granted in a subsequent year does not justify the disallowance of the amount.6. the accounting period relevant to the assessment year under appeal was from 1-4-1977 to 31-3-1978. it is not disputed by the department that under the sales tax act, as it stood during the accounting period, the assessee was liable to pay sales tax.7. it was first contended by the learned departmental representative that there has been no quantification of the amount and that there has been no demand of the amount by the sales tax authorities during the relevant accounting period. this contention cannot stand in the light of the decision of the.....
Judgment:
1. These appeals, one by the assessee and the other by the department, relate to the assessment year 1978-79, for which the accounting period ended on 31-3-1978.

3. The only ground taken by the department in its appeal is that the Commissioner (Appeals) erred in holding that a sum of Rs. 3,53,398, claimed by the assessee as a provision for paying purchase tax, is an admissible deduction.

4. The assessee is engaged in the export of prawns to foreign countries. In the trading account, the assessee made a provision for Rs. 3,53,398 for payment of purchase tax to the sales tax department.

The claim was disallowed by the ITO for the following reasons, namely, that the assessee was always disputing the liability by claiming exemption from payment of purchase tax under the provisions of Section 5(3)(j) of the Sales Tax Act, that the sales tax department had not also issued any demand for the payment of the amount and that later, the Government of Kerala, by a notification dated 29-3-1979, waived the purchase tax in respect of all exporters of sea-foods for the period from 1-4-1977 to 31-3-1979.

5. The Commissioner (Appeals) held that at the end of the previous year, the assessee was liable to pay the purchase tax in accordance with the law prevailing on that date, that the assessee is entitled to claim deduction of this amount and that the fact that exemption was granted in a subsequent year does not justify the disallowance of the amount.

6. The accounting period relevant to the assessment year under appeal was from 1-4-1977 to 31-3-1978. It is not disputed by the department that under the Sales Tax Act, as it stood during the accounting period, the assessee was liable to pay sales tax.

7. It was first contended by the learned departmental representative that there has been no quantification of the amount and that there has been no demand of the amount by the sales tax authorities during the relevant accounting period. This contention cannot stand in the light of the decision of the Supreme Court in the case of Kedarnath Jute Mfg.

Co. Ltd. v. CIT [1971] 82 ITR 363 and that of the Kerala High Court in the case of CIT v. K.A. Karim & Sons [1982] 133 ITR 515 (FB). The law is settled that the liability for payment of sales tax accrued during the year of assessment even though it had to be discharged on a future date.

8. The next contention advanced by the learned departmental representative was that the assessee was disputing the liability to pay the tax. This is also no reason for disallowing an accrued liability vide Addl. CJTv. T. Nagireddy & Co. [1976] 105 ITR 669 (AP).

9. The last contention advanced by the learned departmental representative was that in the light of a subsequent notification issued by the Kerala State Government on 29-3-1979, the State Government waived the claim for purchase tax for the period from 1-4-1977 to 31-3-1979. In the light of this notification, no purchase tax was payable for the accounting period ending on 31-3-1978, relating to the assessment year under appeal. It was argued that when the liability has subsequently disappeared, there was no justification for allowing the claim for deduction. It is also contended, relying upon the decision in CIT v. Indian Motors Transport Co. (P.) Ltd. [1974] 95 ITR 73 (Punj. & Har.), that it is not necessary to make an assessment allowing the deduction and then subsequently to withdraw the same. This decision does not seem to be applicable to the present case, because it related to development rebate wherein the withdrawal will have to be made with reference to the assessment year in which it was allowed by passing a rectification order. The position will be different in the present case, where the deduction if allowed will have to be brought to tax under Section 41 of the Income-tax Act, 1961, in the year in which the exemption was allowed.

10. The contention of the assessee is that the liability to purchase tax was there throughout the accounting period and that the claim of the assessee for deduction of the amount has, therefore, to be allowed.

In this connection, the learned representative for the assessee relied upon the decision of the Kerala High Court in the case of K.A. Karim & Sons (supra). In this case, the assessee, who was maintaining his accounts on the mercantile system of accounting, did not claim deduction of the sales tax liability in the assessment year relevant to the accounting period ending on 31-3-1971. It would appear that the cashew traders including the assessee in that case had taken up the question of the liability for the tax with the Government.

Subsequently, on 12-10-1973, the Government issued a notification granting exemption from the payment of sales tax for the period from 1-9-1970 to 30-9-1973. But this notification was cancelled by the Government under notification dated 9-11-1973. The assessee claimed that the liability of the assessee arose on the cancellation of the exemption by notification on 9-11-1973 and on this basis, he claimed deduction of the sales tax amount in the assessment year 1974-75 for which the accounting period was 1-4-1973 to 31-3-1974. This claim, though allowed by the Tribunal, was rejected by the High Court. It was held by the High Court, relying upon the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra), that the liability to pay the tax arose in the year in which the transactions of purchase took place, that the liabilities had to be provided for in the respective years and that although the liabilities ceased to be operative on a subsequent date due to an exemption notification, it revived on the cancellation of that notification and that it cannot bo said that the liability arose for the first time on the issue of the cancellation notification. The claim of the assessee in that case for deduction of the amount was, therefore, disallowed. The learned departmental representative contended that the above decision of the High Court is based on the fact that the liability had revived on the cancellation of the exemption and in view of the fact that the liability was there throughout, and that this is not applicable to the present case where the liability ceased by a subsequent notification.

We are unable to accept this contention. It was pointed out by the Kerala High Court in the decision of K.A. Karim & Sons (supra) that a subsequent notification granting exemption from tax for a specific period, which had expired even before the issue of the notification, cannot be equated with a case where the levy is cancelled retrospectively and that the question of retrospectivity does not arise in such cases. Dealing with the question, the Kerala High Court observed thus: ... It was a notification which operated to exempt from tax a transaction of a specific period, namely, from 1st September, 1970 to 30th September, 1973, a period which had expired even before the issue of the notification. Its very character was to exempt certain sales of a previous period. The question of retrospectivity does not arise in such a case. Under the sales tax law of the State, the liability to pay tax arises in the year in which the transactions take place. For the period from September 1, 1970 to March 31, 1973, the assessee had effected purchases. Such purchases were liable to tax under the law as it stood then. The liability to tax arose under such law. That the Government took no steps for recovery of tax is irrelevant. That possibly pressure was brought to bear upon the Government by the trade not to enforce recovery of tax on such sales is also irrelevant. The liability having arisen in the year in which the transaction took place provision had to be made for such liability. If the assessees had not made provision in that year but such provision was made in a later year that would not mean that the liability arose only in such later year. If by an exemption notification in a subsequent year the transactions of an earlier period are exempt from tax that would only mean that the existing liability is no longer in force by reason of the notification of exemption. In the case of the assessees before us, the liability to pay tax arose in the years in which the transactions of purchase took place, the liabilities had to be provided for in the respective years, when the exemption notification was published in October 1973, such liability ceased to be operative, but on the later cancellation of such exemption notification by the notification of November 9, 1973, the liability revived. If that be so, it cannot be said that the liability arose for the first time on the cancellation notification of November 9, 1973. (p. 519) Applying the ratio of the above decision, it appears to us that, in the present case, the liability of the assessee for the purchase tax had arisen during the accounting period and that the assessee is entitled to claim deduction of the amount during the relevant assessment year in spite of the fact that the liability ceased to exist in a subsequent assessment year on the basis of a subsequent notification. In this connection, we may also refer to the decision of the Allahabad High Court in the case of Deep Chand Shyam Sunder v. CIT [1980] 125 ITR 724, where the assessee debited sales tax liability for an accounting period during which the liability was non-existent in the light of a decision of the High Court. The attempt of the Government to revive the liability by a subsequent legislation also failed but the assessee was actually assessed to tax by the sales tax department and the tax was also actually paid later. It was held by the High Court that the assessee cannot claim deduction of the amount during the accounting period as under the law obtaining during the period the assessee was not liable to pay the tax. It was also held that the assessee can claim deduction of the tax paid in the year of payment on the basis of the actual payment. This will also show that the question whether the assessee can claim deduction of the amount will only depend upon whether, under the law as obtaining during the relevant accounting period, the assessee was liable to pay the amount.

11. Applying the ratio of the decisions mentioned above to the present case, we hold that the claim for deduction of the amount by the assessee has to be upheld. Our attention was not drawn to any decision which says that the claim can be disallowed merely on the ground that the amount may have subsequently to be brought to tax under Section 41.


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