Skip to content


Commissioner of Income-tax Vs. United India Woollen Mills - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 73 of 1976
Judge
Reported in(1981)24CTR(P& H)244; [1981]132ITR457(P& H); [1982]49STC161(P& H)
ActsIncome Tax Act, 1961 - Sections 145(1)
AppellantCommissioner of Income-tax
RespondentUnited India Woollen Mills
Appellant Advocate D.N. Awasthy and; B.K. Jhingan, Advs.
Respondent Advocate Bhagirath Dass and; B.K. Gupta, Advs.
Excerpt:
- sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply..........in the accounting year and would be entitled to do so only in the accounting year in which the liability accrued (p. 366):'now, under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. although that liability cannot be enforced till the quantification is effected by assessment proceedings the liability for payment of tax is independent of the assessment....an assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed,...'6. again, according to sub-section.....
Judgment:

S.P. Goyal, J.

1. The assessee, a registered firm, derived its income in the assessment year 1971-72 from the manufacture and sale of woollen cloth, sale and purchase of wool tops and yarn. The assessee claimed deduction of Rs. 19,964 in respect of payment of purchase tax during the accounting year. As the liability to pay purchase tax had arisen in the years 1965-66 to 1967-68, and the method of accounting adopted by the assessee was the mercantile system, the assessing authority rejected its claim. The order of the assessing authority was confirmed, on appeal, by the AAC. However, the Income-tax Tribunal allowed deduction of Rs. 16,132 on the ground that the assessee had incurred an enforceable legal liability only from the date on which it received the demand notice for payment of the said sum from the assessing authority on April 27, 1970. Dissatisfied thereby, the revenue got referred the following question to this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the purchase tax liability for a sum of Rs. 16,132 relating to the assessment year 1967-68 for which demand notice was served on the assessee on April 27, 1970, was an allowable deduction in the assessment year 1971-72 ?'

2. The Tribunal, for its view, that the assessee was entitled to deduct the amount in dispute in the assessment year, relied on three decisions, that is, Pope The King Match Factory v. CIT : [1963]50ITR495(Mad) , Kedarnath Jute Mfg. Co. Ltd. v. CIT : [1971]82ITR363(SC) and CIT v. Nathmal Tolaram [1973] 88 ITR 234. However, in our view, the first two decisions do not support the view of the Tribunal and reliance thereon was wholly misconceived. The decision in Nathmal Tolaram's case does support the contention of the assessee but with utmost respect to the learned judges we are unable to subscribe to that view for the reasons recorded hereinafter.

3. In Pope The King Match Factory's case : [1963]50ITR495(Mad) , the liability to pay excise duty had accrued in the accounting year and the assessee debited the said amount in his accounts on April 12, 1955, the last date of the accounting year. On those facts, it was held that the assessee had incurred an enforceable legal liability in the accounting year and the amount in question was deductible in computing the assessee's income for the assessment year 1955-56. It is, therefore, evident that in this case the assessee was not claiming a deduction regarding the liability which had not accrued in the accounting year though it was discharged in that year. Similar was the situation in Kedarnath Jute Mfg. Co.'s case : [1971]82ITR363(SC) , wherein it was held that the assessee was entitled to deduction irrespective of the fact whether he had made an allowancefor the same in the account books or not in the accounting year. None of these decisions, therefore, can be relied upon for the proposition that in the case of an assessee who has adopted the mercantile system of accounts a deduction on account of business expenses, the liability respecting which has not arisen in the accounting year can be allowed, because no deduction was claimed in the year in which it accrued or that it was discharged in that accounting year.

4. In Nathmal Tolaram's case [1973] 88 ITR 234, the assessee was allowed such a deduction in the assessment year with the following observations (p. 237):

'Bat there is no authority to which our attention has been drawn for disallowing an expenditure relating to an enforceable claim of the department which has been made in the year in which the accounts of the assessee had been debited with that demand and 'a claim accordingly has been made. We do not read the aforesaid decision of the Supreme Court as laying down a law for such a situation as obtains in the present case before us. The fact that in the mercantile system of accounting, an assessee had not earlier debited his account with the expenditure which accrued in law in an earlier year would not, in the absence of a barring provision under the law, disentitle the assessee to debit his account later when an enforceable demand is made by the appropriate authority.'

5. A reference to the decision of the Supreme Court in the above paragraph is to Kedarnath Jute Mfg. Co.'s case : [1971]82ITR363(SC) . Though it is correct that in Kedarnath Jute Mfg. Co.'s case no opinion has been expressed on the question in hand, the following observations made therein leave no manner of doubt that an assessee who has adopted a mercantile system of accounting would not be entitled to claim a deduction qua the liability discharged in the accounting year and would be entitled to do so only in the accounting year in which the liability accrued (p. 366):

'Now, under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings the liability for payment of tax is independent of the assessment....An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed,...'

6. Again, according to Sub-section (1) of Section 145 of the I.T. Act, 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. The chargeableincome of the assessee for the assessment year 1971-72, therefore, has to be computed according to the mercantile system of accounting according to which the assessee would be entitled to those deductions, the liability for .which has accrued and not for those which have been discharged, in the accounting year. It was not disputed that the liability to pay the amount in dispute, on account of purchase tax, arose in the year 1967-68 and not in the accounting year. The deduction qua this amount, therefore, could be claimed by the assessee in the year in which the liability to pay it actually accrued and the fact that the authorities entitled to enforce the liability issued notice for its payment in the accounting year would be of no consequence. The reasons given in Nathmal Tolaram's case [1973] 88 ITR 234 that there is no provision under the law which disentitles the assessee to debit such amount later when an enforceable demand is made by the appropriate authority is, therefore, not sustainable because the bar, if not expressly, is impliedly contained in the said provisions of Sub-section (1) of Section 145 which mikes it imperative that the chargeable income shall be computed in accordance with the method of accounting regularly employed by the assessee.

7. For the foregoing reasons, the question referred is answered in the negative, in favour of the revenue and against the assessee. No costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //