Commissioner Of Income-Tax, Orissa v. M/S. Kalinga Tubes Ltd

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JJ.] Cei1trai Sales Tax Act. 1956 : Sales Tt.v.:-Assessee-Follo\VillR 1nerca11t;/e sysfe1n of accnunting-Liability to pay tax--Held arises when the assess~e nuule the sale. Income Tax Act, 1961 : Sectio11 37. Assessee 's sale's tax liabili(v arisinR duri11s: the previous year relevant to assessment year 1962-63-Tax de!ennined by Sales Tax Officer in a subsequent year-Tax denuuul reduced by Tribunal during previous .vear relevant to a~·.\·essn1ent year 1971-72-Held assessee \Vas not entitled to clairn deduction (~fthe said an1nunt in assessn1ent .vear 1971-72. The rospondent-Company was engagt!d in the manufacture and sales of steel tubes and was liable lo pay sales lax under the Central sales Tax Act, 1956. In respect of assessment year 1962-63 the Sales Tax Officer completed the assessment on 31st March, 1996 and demand additional tax of Rs. 11,02,698. This amount was reduced to Rs. 2,21,161 by the Tribunal in second appeal. The respondent-assessee claimed deduction of the said amount as business expenditure in respect of the assessment for the previous year 1970-71 since according to it the sales-tax liability was of the assessment year 1971-72. The Income-tax Officer disallowed the said deduction in the relevant assessment year on the ground that the assessee was following mercantile system of accounting and hence the liability lo pay sales tax accrued to it prior to the said year. The appellate Commissioner allowed the said deduction holding that as the said liability became determinate and known only during that assessment year, it could he ~llowed for that assessment year. The Iucomc-Tax Tribunal reversed the finding of the Appellate Commissioner and held that the said sales tax liability was not admissible as deduction during the relevant assessment year. The High Court held that the liability to pay sales tax can be said to have initially accrued when the H 197 198 SUPREME COURT REPORTS (1996] 1 S.C.R. sales were effected but till the liability had ceased, it shall be treated to have continued to accrue and that when pursuant to the Tribunal's order a fresh demand notice was served by the Sales Tax Officer on the assessee, the liability on the assessee can be said to have accrued on receipt of such demand notice and, therefore, the assessee could claim the deduction under Section 37 of the Income Tax Act during the assessment year 1971-72 even though the liability was of the assessment year 1962-63. In appeal to this Court it was contended for the revenue that (i) the decision of the High Court was erroneous; (ii) as the assessee was following mercantile system of accounting the liability to pay the central sales tax C accrued to the respondent:assessee, the moment the sales, which were subject to sales tax, were made; and (iii) the liability could not cease to be a liability 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. Allowing the appeal preferred by Revenue and setting aside the decision of the High Court, this Court HELD : 1. The decision of the High Court is not sustainable at all. When the assessee is following mercantile system of accounting, in case of sales tax payable by the assessee, the liability to pay sales tax would accrue the moment the dealer made sales, which are subject to sales tax. At that stage the obligation to pay the tax arises. Raising of dispute in this connection before the higher authorities would be irrelevant. [202-A, 203-E] SSS ye5 APeoaa BAe STPADA) DAD) SOdANS5, S05 OM Sa) xoy S, 1956: DED SD DA— HHODAPG — Hredezs WS"OGON MWNMOVGOWGO -— DBOOP)S eres — DHoMard oxo So BSApt AD). ITIP OOD) D1961: 280 37. 1962-63 Bo% Hoi OH8 SomoHod AnKoH8 Hoss SoS > wx SoDHOMAPCA GBS) xo are DSyHehoB — SWS Hoss SoS oxy OxoOHSS TPO? DN) Vona@Mdo — WHo’ HNonsy5o0 1971-72 H HomoHovSHH Sods SoS BensSS Decor Sxn)Biv SAodsa&ko® - HAow% Sods1971-72 S? BO")xy Aveseay Sawey SAD BALPNE DHoDAPHE O SBaxr@ Sova ah) Mero SPH Hbdcin wxsren Bx MbcONS) DN) Wed, 1956 SSO HDS ANd) BOONMAE aPAss DorPowo8.1962-63 Dow DOHSHWANS NHOMOHOD WADSH DAD OHSS 1996 avd) 31Hx) oda wea BH LScto b.11,02,698 ody BX Xk BdwoE me SBBASH. BOSS GAS S Bend arco Se Sosy Sr. 2,21,161 & SAodCDSA.1970-71 S003)NONBOPNSNOAOHorwఆ DEP 0oF caDsCoreMAMFonowe®» GBsrPA- HBowmmrs DO» Wy, Dom¥oB ard GsrDd) eA 1971-72 WHY NonSONS BotMdoH. 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