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Haji Lal Mohd. Biri Works vs Commissioner Of Income-Tax

High Court Of Judicature at Allahabad|15 January, 1981

JUDGMENT / ORDER

JUDGMENT Sinha, J.
1. The Income-tax Appellate Tribunal has referred the following two questions for the opinion of this court:
" 1. Whether, on the facts and in the circumstances of the case, there was any material for the Tribunal to disallow the sum of Rs. 20,795 on account of loss by fire ?
2. Whether, on the facts and in the circumstances of the case, the payment of sales tax composition fee of Rs. 1,91,887 was an allowable expenditure for the assessment year 1968-69 ? "
2. The facts relevant to the first question are as follows:
The assessee deals in the business of manufacture and sale of biris. In the previous year relevant to the assessment year 1968-69, the shop of the assessee at Meerganj was set on fire in communal disturbance. According to the assessee, a wall clock of the value of Rs. 100, 40 bags of biris valued at Rs. 10,400, match boxes of the value of Rs. 3,794, furniture worth Rs. 1,500 and cash amount of Rs. 5,000 were burnt. The total loss was calculated by him at Rs. 20,795 and he claimed the deduction thereof from the income of the year. The ITO did not accept the claim nor was it accepted by the AAC and the Appellate Tribunal.
3. Obviously, the petitioner could not claim exemption of the aforesaid amount unless he had proved that goods and cash to that extent were burnt in the fire. The finding recorded by the ITO, the AAC and the Appellate Tribunal is that the assessee failed to prove that loss. All the three authorities took into account the fact that no account books were produced in order to show as to what goods the shop contained on the date on which it was set on fire. Learned counsel for the assessee did not controvert this fact in his argument before us. It was, however, urged by him that the account books were destroyed in the fire and it was humanly impossible for the assessee to produce those account books. There was, however, no document to show that the account books were in the shop when it was set on fire and that they too had been destroyed. Reference was made by the learned counsel for the assessee to a letter that was sent by the assessee to the police in connection with that fire which was presumably treated as first information report.
4. A copy thereof is made annex. " C " to the statement of the case and a perusal thereof shows that even the first information report did not mention that the account books had also been destroyed as a result of the fire. No doubt, at the time of argument before the Appellate Tribunal, it was urged that the account books were destroyed by fire. Since, however, there was nothing in support of that fact, the Appellate Tribunal could very well refuse to accept that statement.
5. In the context of what has been said above, it cannot be held that the I.T. authorities committed any error in disallowing the claim of Rs. 20,795.
6. The facts relevant to the second question are as follows:
As already stated earlier, the assessee deals in the business of manufacture and sale of 6ms. By the notification published in the U.P. Gazette, Extraordinary, dated 14th December, 1957, it was provided that no tax was payable with effect from December 14, 1957, in respect of biris provided that the additional central excise duties leviable thereon from the close of business on December 13, 1957, had been paid. Another notification published in the same Gazette provided that no tax under the Central Sales Tax Act was payable by any dealer, registered under Section 7(3) of the Central Sales Tax Act and having his place of business in U.P., in respect of sales made by him of bins in the course of inter-State trade and provided they were sales to a dealer who had his place of business outside U.P. After the aforesaid notification the assessee took the view that he was not liable to pay any sales tax on sales effected from December 14, 1957. The sales tax dept., however, held that sales tax was payable for the period from December 14, 1957, to June 30, 1958, but was not payable beyond that date. On 6th May, 1959, the Bins Manufacturing Association of Allahabad made a petition to the Minister of Finance, Govt. of Uttar Pradesh, praying that the Government pass orders for the exemption of sales tax on biris for the period commencing from December 14, 1957, to June 30, 1958. The assessee also made an application that pending the decision of the State Govt., the recovery of the tax may be stayed. This stay was granted. On June 10, 1959, the assessment was made for the period from April 1, 1957, to March 31, 1958, and assessment for the period from April 1, 1958, to March 31, 1959, was made on February 12, 1963. An amount of Rs. 1,14,357 was determined as payable on sale of biris for the period from December 14, 1957, to March 31, 1958, and a sum of Rs. 81,994 was found payable for the period from April 1, 1958, to June 30, 1958. The total comes to Rs. 1,96,351. The stay granted in the year 1959 was vacated on October 16, 1957. Thereafter, an amount of Rs. 1,91,887 was paid (out of the aforesaid amount of Rs. 1,96,351)by the assessee. He claimed exemption for this amount in the year 1968-69, on the ground that the actual payment was actually made in that year. The claim has not been allowed by the ITO, the AAC as well as the Appellate Tribunal, all of whom consistently held that liability for payment of the tax occurred during the year when the sales took place and that it was not material that the payment was made in the assessment year 1968-69.
7. Learned counsel for the assessee reiterated before us that in view of the fact that the recovery of the tax remained stayed till October 10, 1967, and that the actual payment was made in the assessment year 1968-69, the assessee was entitled to claim exemption of the amount in question. Reliance for this argument was placed by the learned counsel for the assessee on the decisions of the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 (SC), Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC) and CIT v. Nathmal Tolaram [1973] 88 ITR 234 (Gauhati). In the first two cases, it was held that the appellant would be entitled to claim deduction of the amount as and when paid to the State Govt. In the third case of CIT v. Nathmal Tolaram [1973] 88 ITR 234 (Gauhati), referred to above, the assessee was liable to pay sales tax for the period commencing on March 31, 1949, 30th September, 1949, and 31st March. 1950. In the accounts maintained by the assessee, he did not make any provision for the payment of this sum. Demand for the tax for that period was made in the accounting year 1957-58 and it was in that year that the assessee made a debit entry in its accounts and claimed it as a business expenditure. The claim was accepted.
8. Learned counsel for the revenue, however, urged that so far as the decisions of the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 and in the case of Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC), are concerned, they do not specify that the assessee in those cases maintained accounts on mercantile basis.
9. Learned counsel pointed out that in the instant case there is no dispute about the fact that the assessee maintained account books on mercantile basis and, consequently, it is the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. C1T [1971] 82 ITR 363 (SC), which should apply. Learned counsel added that the decision of the Gauhati High Court in the case of CIT v. Nathmal Tolaram [1973] 88 ITR 234 (Gauhati) cannot also be followed for the same reason.
10. In the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), it was observed (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. It is significant that in the present case, the liability had even been quantified and a demand had been created in the sum of Rs. 1,49,776 by means of the notice dated 21st November, 1957, during the pendency of the assessment proceedings before the Income-tax Officer and before the finalisation of the assessment. It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liabilities which had accrued during the period for which the profits and gains were being computed." (Underlining by us)
11. The aforesaid decision of the Supreme Court has been followed by three Division Bench decisions of this court, viz., CIT v. Brijmohan Das Laxman Das [1979] 117 ITR 121, Deep Chand Shyam Sundar v. CIT [1980] 125 ITR 724 and Vishwanath Seth v. CIT [1980] 123 ITR 29. In all these three decisions, it has been consistently held that where an assessee follows the mercantile system of accounting, liability to pay the sales tax is attracted in the year in which the sale is effected and the fact that the tax is paid in a subsequent year is of no consequence. An identical view was taken by the Calcutta High Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1977] 110 ITR 385.
12. In the case of Deep Chand Shyam Sunder [1980] 125 ITR 724 (All), the Division Bench of this court referred to the decisions of the Supreme Court in the cases of Chowringhee Sales Bureau P. Ltd. [1973] 87 ITR 542 (SC), Sinclair Murray and Co. [1974] 97 ITR 615 and Kedarnath Jute Mfg. Co. Ltd. [1971] 82 ITR 363 and distinguished the same with the following observations (at p. 728 of 125 ITR):
" We are of the view that there is no conflict at all. In Chowringhee Sales Bureau and Sinclair Murray and Co. the question was not considered from the point of view of an assessee who was maintaining his accounts on the mercantile basis, as no such question appears to have arisen in those cases. The question directly came up for consideration in Kedarnath Jute Mfg. Co.'s case [1971] 82 ITR 363 (SC) and it was held that where the mercantile system of accounting was followed, entries regarding sales tax liability could be made in the year in which that arose. As Kedarnath Jute Mfg. Co.'s -case directly deals with cases where the mercantile system of accounting is followed and as the Chowringhee Sales Bureau [1973] 87 ITR 542 (SC) and Sinclair Murray and Co. [1974] 97 ITR 615 (SC) cases do not specifically deal with the question, we cannot read these two cases as expressing a view contrary to that taken in Kedarnath Jute Mfg. Co.'s case [1971] 82 ITR 363 (SC)."
13. The Division Bench further cited with approval the decision of the Calcutta High Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1977] 110 ITR 385 and in the case of CIT v. Kumardhubi Engineering Works Ltd. [1978] 115 ITR 58, in which also, similar view was taken.
14. Learned counsel for the assessee, however, referred us to another Division Bench decision of this court in the case of CIT v. Banwari Lal Madan Mohan [1977] 110 ITR 868 (All). In this case, the assessee, an HUF, maintaining account books on mercantile basis, showed a certain sum in its accounts as sales tax liability. The sales tax liability was quantified and paid in the financial year relevant to the assessment year 1962-63. The amount paid in excess of what was set apart was claimed as a deduction by the firm for that year. The claim was accepted as allowable. Now, there are two reasons for which this decision should be of no help to the assessee. In the first instance, there is the fact that the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) was not brought to the notice of the Bench deciding this case. Further, the exemption was claimed only for, the excess amount quantified and not for the whole amount. In fact the case of CIT v. Banwari Lal Madan Mohan [1978] 110 ITR 868 (All) was distinguished on that basis in the two Bench decisions of the court, viz., Banwari Lal Madan Mohan v. CIT [1978] 113 ITR 562 (All), CIT v. Brijmohan Das Laxman Das [1979] 117 ITR 121 (All). Needless to say that the present case is not a case relating to the payment of the excess amount of the sales tax.
15. We are, accordingly, of the opinion that the claim for Rs. 1,91,887 was not an allowable expenditure for the assessment year 1968-69.
16. In the result, both the questions referred to us are answered against the assessee and in favour of the revenue. In the circumstances of the case we, however, make no order as to costs.
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Title

Haji Lal Mohd. Biri Works vs Commissioner Of Income-Tax

Court

High Court Of Judicature at Allahabad

JudgmentDate
15 January, 1981
Judges
  • J Sinha
  • M Mehrotra