JUDGMENT B.P. Jeevan Reddy, C.J.
1. Under Section 256(2) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has stated the following question :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in reversing the finding of the Appellate Assistant Commissioner that the assessee can claim deduction only for actual payments made in one financial year less realisations from the customers ?"
2. The assessee is a registered firm. The assessment year concerned is 1969-70. The assessee is engaged in purchase and sale of motor oil and motor parts. The relevant previous year was April 1, 1968 to March 31, 1969. For the past few years, the assessee was collecting sales tax and making a provision for sales tax but was actually paying a lesser amount to the Sales Tax Department. Since the petitioner was maintaining his accounts on mercantile basis and since the tax liability was already there, the difference amount was not added to his income. But, for this assessment year, the Income-tax Officer added the difference amount in the income on the ground that it was not paid to the Sales Tax Department. His order was confirmed by the Appellate Assistant Commissioner, but the Tribunal held, on further appeal, that since the liability is there and also because the assessee is maintaining its accounts on mercantile basis, the addition of the said difference amount was not warranted. Thereupon, the aforesaid question was referred.
3. Learned counsel for the Revenue relied upon the decision of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 and of the Madras High Court in P. M. A. P. Ayyamperumal Nadar v. CIT [1974] 97 ITR 161. In both these cases, it has been held that the sum realised by the dealer as sales tax constitutes part of his trading or business receipts and that when it is paid to the Sales Tax Department, the dealer would be entitled to claim deduction. But both the decisions do not make it clear whether the assessee before the Supreme Court was maintaining its accounts on mercantile basis or on cash basis. Where the assessee is maintaining accounts on mercantile basis, the basis of deduction is the accrual of liability and once the liability accrues, it has to be allowed irrespective of the fact whether the amount is actually paid in that year or not. This has been so held by the Calcutta High Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1977] 110 ITR 385, after noticing the decision of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542. Indeed, the decision of the Calcutta High Court is with respect to the same assessee, who was concerned in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542. Since the assessee herein was maintaining accounts on mercantile basis, the addition of the difference amount was not proper and the Tribunal was, therefore, right in deleting the said addition.
4. In this connection, we may mention that, in 1984, Parliament has introduced Section 43B into the Act with effect from April 1, 1984. The said provision says that, irrespective of the method of accounting regularly employed by the assessee, the sum payable by way of tax, inter alia, will be deducted only in the previous year in which the amount is actually paid. The said provision has, however, no retrospective effect.
5. For the above reasons, the question referred is answered, i.e., in favour of the assessee and against the Department. No costs.